Techs were piping hot last year, as unappealing as
earlier this year, then warming up again last week. But if the only investment vehicle you followed was your 401(k) plan, chances are you missed all these moves.
Technology, despite the volatility that comes with the territory, has been the dominant investment sector of the past few years, with scads of tech-focused funds hitting the market recently. But despite the clamoring of employees, 401(k) plans have by and large steered clear of tech-sector funds.
According to Lincolnshire, Ill.-based management consultant
, only 10% of its clients offer a technology option in their 401(k) plans, even though tech funds, along with real estate, are the most popular type of sector funds.
"401(k)s are slow to change," says pension consultant Robin Herzog of
, a unit of
. The retirement-plan world is so slow that many companies are just now getting around to international and emerging markets funds, Herzog says.
Why don't 401(k) plans get with the times?
The reluctance is part altruistic and part defensive. "There's a fiduciary issue for a lot of plan sponsors: 'How risky do I make the retirement plan?' " says Gerry O'Connor, a senior consultant with the
, a 401(k) consultant firm.
In general, the retirement market doesn't jump on investment trends, O'Connor says. It was only a few years ago that employers started adding aggressive growth and index funds that had become trendy in the taxable world.
"Participants are always eager for the employer to offer funds that are trendy and have done well lately, but that may not be prudent," says Lori Lucas, a retirement plan consultant with Hewitt.
Also lurking in the background is the fact that employers don't want to open themselves up to lawsuits, which though uncommon now, could very well happen, say 401(k) consultants. Under the rules of the Employee Retirement Income Security Act of 1974, employees have a responsibility to provide a diversified menu of investment options and to educate their employees about the options that are available. From there, employees are on their own. But that provision isn't explicit in getting employers off the hook and some are afraid.
"I could see a situation where someone is 62
years old and about to retire and puts all their money in technology, which then has three bad years. I could see that person then saying 'My company screwed me up by offering a technology fund,'" says Charles DiVencenzo of
, a provider of funds for 401(k) plans.
DiVencenzo and others hear rumblings of change. Hartford, which offers plan sponsors all of its mutual funds for inclusion in their 401(k)s, recently came out with a technology and health care fund, which it will introduce as an option in the lineup in coming months.
And more workers are asking their bosses to include the funds, Lucas says. "Whether or not plan sponsors are rushing out and adding technology funds is another thing," she adds.
In the first four months of the year, mutual-fund shareholders pumped almost $36 billion in the sector, more than five times the amount during the same period last year, reports
of Boston. It's not hard to see why employees would be clamoring for tech funds in their retirement portfolios after investing them in taxable accounts. Tech funds gained on average a whopping 136% in 1999, according to
. So far in 2000, they've averaged a 4.9% decline. But for many employers, it's still a risky proposition.
Many employers figure that if they provide aggressive growth funds for their workers, that would appease the tech bug -- the average large-cap growth fund has a 42% weighting in technology, according to Morningstar. "It's not going to do much for participants in diversification," Lucas says.
It's not just that technology is too narrow an investment, says Herzog. Though employers may be reluctant to offer sector funds within the 401(k) plan, they are especially loath to put forward technology.
Still, several consultants say that employee wishes will give way to employer constraints. In the hot job market, more and more companies are using their 401(k) plans as a way to distinguish themselves from their competition, says Hartford's DiVencenzo.
"With the labor market so tight, companies are pressured to be more flexible, especially for younger employees who are versed in the investment culture," he says.