U.S. Offers Firms 401(k) Investment Guidelines

When workers find they don’t know enough about investments and financial markets to be smart about investing their 401(k) retirement savings plan, they often turn for advice to the source of that plan: their company.

But companies have been worried that giving advice exposes them to potential lawsuits if their workers’ investments lose money.

To try to improve the situation, the Labor Department on Tuesday released guidelines, in the form of an “interpretive bulletin,” to help companies figure out what they can do to help workers make “informed investment decisions” without actually giving them “investment advice.”

Benefits experts called the bulletin a welcome development, though they noted that many companies have already undertaken some of its advice.

“What [the bulletin] is talking about is a greater level of education. Everybody learns in different ways, and this gives employers greater flexibility to speak to their employees in the most appropriate way possible,” said Wayne Bogosian of the Boston office of Watson Wyatt Worldwide, a large benefits consulting firm.

Retirement savings through 401(k) and similar plans have grown dramatically since the mid-1980s, with an estimated 22 million Americans now participating. In a 401(k) plan, the worker or employer makes regular contributions that are credited to an account in the worker’s name.

The worker invests the account in one or more of the alternatives allowed by the plan, which often are mutual funds or company stock. At retirement, the worker gets the entire value of the account.

The plans appeal to employers because there is less regulation than with a traditional pension, and in contrast to traditional pensions, the investment risk falls entirely on the worker.

However, companies have already been concerned that a lack of participation as well as poor investment choices could leave employees with inadequate resources in retirement.