Retail chain's employees in a 401(k) mutual fund supermarket

ALBUQUERQUE, N.M. -- Marianne Santistevan is a 41-year-old supermarket clerk and mutual fund fanatic.

She became hooked on Oct. 1, 1996. On that day, the 401(k) retirement plan offered by her employer, American Stores, exploded from a run-of-the-mill mix of five investment funds to a dizzying roster of 137 choices.

Ever since, she and her husband, Larry, a self-employed artisan with no retirement plan of his own, have thrown themselves into studying market trends and business basics during time once reserved for quiet evenings at home and watching football on the weekends. Marianne, who makes $10.76 an hour managing the seafood section at a Jewel-Osco supermarket, now devours financial news daily and talks stocks with "the girls" at work. If anything, her husband is even more involved. "There was one night last fall he lay awake all night watching the stock channel," she said. "He kept saying: `Marianne, we've got to move these funds. Marianne, we've got to move `em.' I said: `Just chill. We'll be OK.'" The next day, though, she abdicated and called a toll-free number to make the switch he was urging. By then, however, she was accustomed to moving her money around. In the year after her choice of funds expanded, she went from a portfolio of $37,766 divided among three old-style funds to one of $52,720 spread among eight funds. "It's really neat that there are so many different funds to choose from," she said. "I brag about it." American Stores does, too, saying it has responded to demands from employees for more options in retirement investing. But not everyone is so enthusiastic at the company, which is based in Salt Lake City and employs 127,000 people at 1,714 supermarkets and drugstores in 27 states. Many workers acknowledge that they are bewildered by the sheer number and range of the offerings, with brain-teasing names like Fidelity U.S. Equity Index Commingled and MAS Mid-Cap Growth Institutional. Indeed, 90 percent of the employees' $3.9 billion in 401(k) assets remains in the original five funds: an equity fund invested in a blend of growth stocks; a balanced fund invested 60 percent in stocks and 40 percent in bonds; a fixed-income, intermediate-term bond fund; a short-maturity bond fund, and a fund that holds only shares in American Stores. If workers can be blinded by the blizzard of new offerings, investment professionals are mostly perturbed by what American Stores has unleashed on its employees. They tend to view the company's new 401(k) as the harbinger of an alarming trend -- overloading people with investment decisions that they are unprepared to make. "It's awful," said Lynn Hopewell, president of the Monitor Group, an investment advisory firm in Fairfax, Va. "This smorgasbord approach is consumerism run amok. Does somebody really need 137 choices? No. A 401(k) is not a supermarket; it's a retirement. All you're doing is confusing people. You should give them six or seven funds that they can combine to make good portfolios." Whether American Stores is leading the way in giving workers new power or setting the stage for individual financial folly on a grand scale, its experiment bears close attention. The debate about the wisdom of pushing retirement planning onto individuals is widening, to include perhaps even privatizing Social Security. Are the investing skills of ordinary people -- butchers and bakers, clerks and cashiers -- up to the task? American Stores' five original funds are overseen by a company investment committee. Each fund is actually invested in several mutual funds chosen by the panel. The company threw open the choices to individuals by hiring Fidelity Investments to offer them a "mutual fund window" of 62 of its funds and 70 others from groups including Janus and Franklin Templeton. The plan is an extreme case, but it is not alone in expanding the number of funds available to employees. According to a recent survey by William M. Mercer Inc. involving 455 retirement plans with $324 billion in assets, the number of funds in the average 401(k) plan has risen to eight from four in the last five years. Moreover, about 3 percent of all plans now offer fund windows, which are wide selections of funds. Other brokerage firms are also aggressively pursuing the 401(k) market, which has grown to 25 million people and $1 trillion in assets. Charles Schwab offers a fund window with thousands of choices, for example. But so far, mostly professional firms -- whose members are highly paid doctors, lawyers, accountants and the like -- have taken advantage of such fund supermarkets. To hear American Stores tell it, though, you do not need an advanced degree to cope with the complexities of investing. "We have a large work force that you might not consider sophisticated," said Duane Whitney, director of retirement plans at the American Stores headquarters in Salt Lake City. "They work the stores, stock shelves and check people out. But we have a lot of people who are interested in the new choices." Besides, Whitney added, most of the money is going into well-known funds. "We don't have any fund running away with most of the money," he said. "About 70 percent is in 20 funds representing the better families: Fidelity, Janus, PBHG, Neuberger & Berman, Pimco. And a fair amount is in international exposure." Many of American Stores' employees are automatically enrolled in the 401(k) plan after a year on the job. In its current profit- sharing plan, American Stores automatically contributes the equivalent of 5 percent of workers' pay into their 401(k) plans. The company also matches employee contributions of up to 6 percent of pay at 41 cents to the dollar. Workers can contribute up to 12 percent of their pay before taxes and an additional 4 percent after taxes. The plan now has 47,000 participants. It also includes 23,000 retired people but excludes 80,000 workers who have not met eligibility requirements or who have joined separate plans negotiated by local unions. In the 16 months since the company's 401(k) "big bang," the work force has split into two camps. The members of the minority, to which the Santistevans belong, are micromanaging their 401(k) plans, poring over their mutual fund reports and following business news in the same way that baseball fans study box scores and scouting reports. The majority of employees still put their money into the handful of tried-and-true funds that have been around since the 401(k) was born in 1984. In fact, the inertia may be the most effective counterargument to professionals who fret that many workers lack the sophistication to deal with vast numbers of investment alternatives. No one seems more aware of this knowledge gap than the workers themselves. "The more I read and try researching, the more confusing it is," said Jo Ann Bishop, 56, a clerk and cashier in the drugstore side of a Jewel-Osco combination store, also in Albuquerque. "It's a gamble any which way. So I don't move around much." Bishop makes $8 an hour and has been contributing 6 percent of her pay to her 401(k) for 13 years. She has built up $57,000 in her retirement account, divided evenly between two of the original funds -- the equity fund and the stock-and-bond fund. She has a soul mate in Francis McConnell, 65, a cashier at a third Albuquerque store. It is not that he is befuddled by the 137 choices; he just couldn't care less about them. When the 190-page Morningstar guide to the funds arrives in the mail twice a year, he tosses it in the trash without opening it. McConnell acknowledges that he has never been particularly attuned to the nitty-gritty details of his 401(k) plan. In fact, he says, he did not even realize he was in one until a co-worker broke the news to him five years ago. At the time, he had been receiving company contributions for about a year. (If employees do not specify where their money should go, it is automatically deposited in the short- maturity bond fund.) Today, divorced and living alone, McConnell works 12 to 16 hours a week at $7 an hour to supplement his $750-a-month Social Security check. He contributes 10 percent of his pay to his 401(k), which now holds $7,200 -- 90 percent in the old stock-and-bond fund and 10 percent in the fixed-income fund. "The big reason I got into it was it was such an easy thing to do," he said. "I never see it; therefore it's not in my hands. I don't have any big plans with my retirement." But the majority camp is not populated solely by the throw-up- their-hands crowd. Some people want to join the mutual fund feast but are tortured by the thought of getting food poisoning. So they hover around the edges, watching hungrily and debating whether and when to grab a bite. Consider Tony Estrada, 44, a meat-counter manager, also in Albuquerque. Estrada knows one thing for sure about managing his 401(k): He does not want to end up like Santistevan. "There's no sense in losing sleep over it," he said. Even so, he gets nervous. The son of Mexican immigrants who worked odd jobs all their lives, he said he never even dreamed of having a retirement account when he started working for American Stores 23 years ago. But today, he has built up a 401(k) nest egg of $118,000, and he does not want to jeopardize it. When the stock market took a tumble last October, he said, "I started sweating." Estrada, who makes $17.71 an hour, has put 60 percent of his money in American Stores stock and the rest in the stock-and-bond fund. As he talked in a store office about his investments, he gripped the edge of his seat and gritted his teeth. He said he was eager to grasp the opportunities of the company's expanded 401(k) choices and was afraid of letting them pass him by. On the other hand, he said, he did not think he had enough information to make a move yet. "I don't feel that knowledgeable," he said. "If I had proper knowledge, I'd probably be more active. I wish I could get more advice. But nobody comes out to educate us about stocks or retirement." So Estrada is staying put for now, despite the fact that his American Stores holdings stagnated last year, gaining a mere 0.1 percent, and the stock-and-bond fund posted a mediocre return of 14.5 percent. (By contrast, Santisteven's investment in Fidelity U.S.Equity Index Commingled, one of the new funds offered, returned 33.3 percent last year.) Estrada's only venture into the brave new world of investment independence took place outside his company's retirement plan. Last year, he put $500 for each of his daughters, Yari, 9, and Andriana, 7, into a global aggressive-growth fund that he bought through Paine Webber. But even that foray was fraught with unexpected risk; his adviser at Paine Webber, he says, reviewed his 401(k) portfolio and suggested shifting all of his money into the American Stores stock fund. That would have been an expensive gamble. Though the company's share price at the time had gained nearly 20 percent since the beginning of the year, it plunged 24 percent in November after a poor earnings report for the third quarter. "I'm glad I didn't pay any attention to him," Estrada said.

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