Your 401(k): Why You Shouldn't Go It Alone

Employers have every incentive to make retirement plans work, but you have more.

ByABC News
December 11, 2012, 9:17 AM

Dec. 11, 2012— -- Millions of Americans are headed for an extremely disappointing retirement because they aren't putting enough money away in their 401(k) plans and aren't managing these plans effectively. The answer to this problem lies with you and your employer.

Though many 401(k) investors could put far more money into their plans out of their paychecks each month, reducing their tax bills in the process, many others simply don't have enough left over after their monthly expenses to adequately fund their plans. Yet, this is all the more reason to learn to manage your plan effectively to get the most out of it come retirement.

Most people in these plans have no idea how to manage them. That's why your employer should help you. After all, there's no point in providing employees with this benefit if you don't help them get the most out of it. It's like giving your son or daughter a car and never ensuring that they know how to drive safely. Most 401(k) accounts crash before reaching their destination.

Employee benefits usually stem from market demand and employee requests — especially in a labor market that will be tightening increasingly as unemployment continues to fall. And education on how to manage your 401(k) plan is a critical component of this benefit. So if, like millions of others, you don't understand your investments in the plan and how they should be managed, you should go to your employer for help.

Some large employers have effective programs set up to provide this assistance. But many companies, including most small and midsize firms, do not. So, for you to get the help you need, your employer may have to make some changes.

Your reaction to this may be that this won't happen because it will cost your company money. The welcome news is that it won't because, in most cases, employees, not employers, pay plan expenses — out of their accounts. These fees may be so high, so inflated, that your employer might be able to add an education plan or improve your existing education program at no additional cost by changing plan providers.

New federal regulations are forcing employers to take a hard look at the fees for their plans to determine whether they're reasonable and to make changes necessary to assure that they are.

This will ultimately cause a shift in which many companies will get new plan providers who charge lower fees. So there would be money left over for employee education, preferably in the form of objective advice from an independent advisor.

Education and advice on your plan should help you make investment choices and revise these choices as time passes. Key elements of an effective 401(k) plan education program should include: