Every year, there’s more competition in the $1 trillion 401(k) market from companies that want to provide benefit plans to your employer. That’s good news for you, the ultimate consumer.
David Wray, president of the Profit Sharing/401(k) Council, a Chicago trade group of employers that offer the plans, says his members are constantly being solicited by brokerages, mutual fund companies and consultants that offer 401(k) retirement savings plans.
David Huntley, whose 401(k) Provider Directory helps companies find plans, says he’s seen companies shift on the strength of complaints from just a handful of workers.
So, check out your 401(k) plan to make sure it’s top of the line.
If it isn’t, press your boss for the improvements that he or she can probably find just by opening the mail or answering the phone.
Then, review your own management of your 401(k) assets.
Edmund Martinez, investment manager for Merrill Lynch’s Group Employee Services unit, suggests you do an annual checkup of your own objectives, investment choices and 401(k) fund performances.
Here are the questions you should ask when reviewing your plan:
* How many investment choices do I have? Most typical are plans offering six or seven investment choices, including stock mutual funds, a guaranteed investment option (such as a fixed-rate contract with a bank or insurance company) and international mutual funds.
* What kind of match am I getting? Some employers have backed away from the contributions they used to make, but still most common is an arrangement in which an employer will contribute up to 3 percent of an employee’s salary by putting in 50 cents for every dollar the employee contributes.
* Am I paying fees and are they reasonable? Don’t look now, but some employers are shifting more of the cost of 401(k) management over to the employees who participate. The smaller your employer, the more you and your boss may be paying in hidden fees _ as much as $28 for every $1,000 in plan assets, says Huntley.
Soon, the Labor Department is expected to require clear disclosure of 401(k) expenses and then price competition will finally kick in. In the meantime, find out if your plan charges you to switch in and out of investment funds or offers choices of cheaper funds, and act accordingly.
* Am I investing the maximum? In 1998, the maximum 401(k) contribution moves up to $10,000, though your own company’s rules and the size of your salary may limit your contributions to less than that. Make sure you are contributing as much as you are allowed, even if you have to brown bag it a few days a week to cover the cost. It’s worth it.
* How much company stock do I have? Despite some weak effort by Congress to reduce the dependence of some company plans on their own stock, there are still some 401(k)s stuffed with homegrown shares.
This is a mistake: Even a good company can go through a bad time, and the one thing you don’t need is the double whammy of losing a job and watching your retirement account go south at the same time.
* Is my portfolio allocation in line with my objectives? If you haven’t reviewed the mix of your money in a couple of years, it could be seriously askew.
Strong stock market performance may have dwarfed the other parts of your portfolio, so if you liked the mix you had to start, you may have to lighten up on stocks and add foreign funds, bond funds or small stock funds to even it out.
Consider your age and retirement objectives. If you’re five years or more away from withdrawals, you can afford to keep the bulk of your investments in stocks.
* What kind of performance am I getting? Compare your returns with those of a comparable index or peer group.
For example, is your large stock fund doing as well as the Standard & Poor’s 500 index? Or as well as other large stock funds? If not, perhaps there are better choices within your 401(k).
Or, go back to square one and ask your employer to find a better provider. The trees are full of them.
Linda Stern is a free-lance writer who covers personal finance for Reuters. c/o Reuters, Suite 410, 1333 H. St. NW, Washington, D.C. 20005. Or e-mail (72160.1546(AT)compuserve.com).
