Firms should help workers with pension fund decisions

STAYING AHEAD

December 20, 1992|By JANE BRYANT QUINN

NEW YORK — New York--December is the month that many employees have a major decision to make. If they're contributing to a tax-deferred savings plan, like a company 401(k) or a teachers' 403(b) plan, where should the money go next year?

Typically, you have three categories to select from: stock funds, bond funds and fixed-income accounts. Some employees can switch their money around quarterly or even daily, but about half the plans allow only annual decisions.

If you're self-employed, you have until Dec. 31 to open a Keogh plan. As long you get the Keogh started, even with only a small sum of money, you can make additional tax-deductible contributions for 1992 right up to the due date of your income-tax return. But again, where should you invest your funds?

This decision worries most people who are untrained in the principles of long-term investing. You're betting your future on the choices you make, yet you may not have a sound basis for making them. Every employer's money-management experts know how to allocate pension savings productively, but they're rarely allowed to share their knowledge with employees.

As a result, a good deal of personal retirement money is invested poorly. Individuals tend to be too cautious. Some 60 percent of their 401(k) money reposes in slow-growth bonds or fixed-payment "guaranteed investment contracts" (GICs).

GICs and bonds have done well in recent years. But they can't touch the gains that long-term investors get from stocks. Historically, stocks have returned an average of 7 percent over the inflation rate, reports Ibbotson Associates in Chicago, while long-term bonds returned only 1.6 percent. By clustering too much money in bonds, individuals are shortchanging their futures.

Most employers think that this is strictly your lookout. You're a grown-up, they say; how you handle your pension is up to you. If they make no suggestions, they figure they'll never have to take any blame.

But they'll be blamed eventually, if retirement savings accounts turn out to be too small to live on.

America's social-welfare plan has traditionally been grounded in the private sector, and retirement funds are part of the safety net. If employers don't fulfill their obligations (as many haven't with health insurance), then government and society fail, too.

"A company shouldn't be able to evade the responsibility of a pension plan by saying to employees, 'Here, you make the choices yourself,' " says Norman Stein, tax and employee benefit law professor at the University of Alabama.

Your company owes you the facts you need to manage the

money you've been handed to invest. And it's not enough just to give you a summary or even a prospectus, explaining how each investment fund works. Companies need to explain investment concepts and some, including Ciba and the Bechtel Group, do so.

Some employees are hiring investment advisers. For example, Ex-stockbroker Michael Scarborough in Annapolis charges $250 annually to manage an employee's 401(k) investments. Outside advice is a logical route, if employers don't help with the tools people need to advise themselves.

(Jane Bryant Quinn is a syndicated columnist. Write her at: Newsweek, 444 Madison Ave., 18th Floor, New York, N.Y., 10022.)

1992, Washington Post Writers Group

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