| Home Page
Mortgage News You Can Use
Iconocast SEM
401k plans are getting even more scrutiny
By TOM PETRUNO
Los Angeles Times
2/3/2004
It's a tough call to say who's more worried about company retirement savings plans: the aging baby boomers who don't have nearly enough invested in the plans, or the people who oversee the programs - and who risk getting blamed if workers are under-saving.
There actually was good news for all concerned last year. The stock market's rebound helped lift many Americans' balances in 401(k) and similar employer-sponsored retirement plans for the first time since 1999.
That is making year-end account statements a lot more pleasant reading. And it may have the effect of making more people think about raising their savings levels, or about allocating assets more thoughtfully among 401(k) plan choices.
Those choices have become much more diverse over the past decade, which is another reason employees ought to take a fresh look at their plans.
For the company managers who are charged with administering 401(k) programs, last year brought increasing pressure to show that the plans are meeting employees' needs. Federal regulators are breathing down companies' necks on the issue of fiduciary duty - the question of whether a company is doing the best it can to help workers invest their retirement nest eggs responsibly.
"There's a greater intensity of scrutiny and a broadening of what companies look at" in reviewing their 401(k) plans, said David Wray, president of the Profit Sharing/401(k) Council of America in Chicago, an association of companies that offer the plans.
The mutual-fund-industry scandal heightened the urgency for a closer look at the programs, Wray and other experts say.
Funds are the primary investments offered in company-sponsored retirement plans. The allegations of trading abuses involving some funds, and the broader issue of the fairness of fund fees and expenses, are forcing 401(k) plan managers to ask many more questions about the portfolios they offer workers.
The stance taken by the federal Department of Labor, which oversees retirement programs, is that "employers have the specific obligation to consider the reasonableness of fees," said Betsy Faber, who heads the 401(k) plan unit in the western United States for consulting firm Mercer Human Resource Consulting in Los Angeles.
There's another issue that's enhancing the importance of 401(k) and similar so-called defined-contribution retirement plans: There have been more than a few headlines in recent months about the difficulties faced by traditional company pension plans, the "defined benefit" programs under which firms promise employees a stream of income in retirement.
Many companies say they haven't put enough money away for those plans. By contrast, there is no questioning the nearly $2 trillion that's in 401(k) and other such plans that cover about 42 million workers. The assets are there; the only issue is, will the money grow at a rate that will assure a decent retirement?
Many factors will determine the growth rate of 401(k) sums, including, of course, what happens with the stock market in the next decade. But the quality of the investment options in the plans, the rate at which employees contribute to the plans, and how much of a matching contribution, if any, their companies make also will be key to the growth of 401(k) balances.
Investment choices. The average 401(k) plan offers 13 investment options, according to a Deloitte Consulting survey of 700 plans nationwide last summer. The number has risen from an average of five or fewer options in the early 1990s.
Continue with:
| 
