The game plan for retirement

More companies are offering help with investment choices


Your Money

July 25, 2004|By Lorene Yue

People always say they want a lot of investment choices in their 401(k) plans at work, but when they get them they often find themselves overwhelmed by the decision-making process.

Take the case of International Business Machines Corp., where workers met in focus groups to discuss the company's retirement benefits.

IBM's 401(k) plan has 21 investment choices. At first, workers said they needed more information to make decisions about allocating their funds, said Jay Vivian, director of IBM's retirement funds. But later in the discussion, the workers admitted they felt overwhelmed by the information they already had access to.

"People are dying to make the right decisions, but they don't want to have to worry about it," Vivian said.

For a little more than a year, IBM has offered employees the handholding they wanted through Financial Engines, one of several companies now providing online 401(k) advice, telephone access to financial planners and portfolio management. The price for the advice generally is $4.17 a month per $10,000 in the retirement account.

Such advice is becoming more commonplace. Nearly 52 percent of employers offer investment advice on 401(k)s, said David L. Wray, president of the Profit Sharing/401(k) Council of America.

It is most prevalent in small companies (59.7 percent) and least prevalent in large companies (34.5 percent). The most common types of advice offered are one-on-one counseling (55.2 percent), Internet providers (50.2 percent) and telephone hot lines (31.9 percent).

An annual survey by the group shows 22.1 percent of companies last year offered workers access to professional management of their retirement investments, up from 13.6 percent in 2002, Wray said.

Mutual fund companies are not allowed to give advice because the plan participants' choices could affect the fund companies' incomes. They can (and do) offer generic education, which is still the only roadmap a lot of 401(k) investors are provided.

Employers can be held responsible for bad advice, but they can also be held liable if they don't make available any instruction and participants do things that are not in their best interest, like invest 100 percent of their allocation in company stock that later becomes worthless, said Ann Terranova, a San Francisco certified financial planner.

"The best thing is for employers to go through a process for evaluating the advisers they are going to make available to their employees," Terranova said.

Without the benefit of advice, many workers have been allocating money based on glossy booklets that contain more colorful graphics than numbers, said Nancy Frank, a fee-only certified financial planner with Frank Advisory Services in New York.

"They don't understand how expense ratios work," she said. "If it's a load fund, are you paying the [sales charge], or is the employer paying?"

Many workers don't know to ask, she said.

Novelda Sommers is a staff writer for the Daily Press in Newport News, Va., a Tribune Publishing newspaper.

Tips on how to feather your nest egg

Financial writer Walter Updegrave observed in his new book that the road to retirement once was brightly lit and well-marked, but it's not anymore. The switch by many employers from traditional defined-benefit pension plans to 401(k)s created a new retirement reality for workers as bizarre to them as Oz was to Dorothy, he maintains.

"There is very little formal education in this," said Updegrave, author of We're Not in Kansas Anymore: Strategies for Retiring Rich in a Totally Changed World. "A lot of people feel they've kind of had this foisted on them."

Some employees find it so daunting that they don't invest in their 401(k)s, which is the worst investing mistake they could make - worse than choosing the wrong investments, he said.

Updegrave suggests beginning a plan by answering three questions: What do I have now? How much do I need when I retire? How can I get there?

Among the suggestions Updegrave offers for making the most of your 401(k):

1. Sign up now

Getting started just five years late can reduce the size of your nest egg by 25 percent, the difference between having $600,000 or $800,000 when you retire.

2. Contribute as much as you can

The 2001 tax law boosts the maximum contribution to $15,000 by 2006.

3. Don't ignore costs.

If at age 45 you put $50,000 in an investment that earns 10 percent annually and deducts 1.5 percent a year in expenses, you would have about $256,000 by age 65. The same $50,000 in a fund that deducts just 0.5 percent a year in expenses would grow to about $307,000.

If your plan offers retail mutual funds, you can check out their expenses at

4. Don't overdo it on company stock.

Unless you have plenty of other assets to fall back on, you're better off limiting your company stock holdings to no more than 10 percent of your 401(k).

Unsure? Hire a pro for investment advice

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