Competition in the $867-billion 401(k) business has been heating up something fierce, so at this point you ought to be able to ask more of your employer than just "Please, get a plan."
According to the Profit Sharing/401(k) Council of America, some 220,000 employers already have plans, in which 29 million employees are participating. It's time now to get beyond participating, and make sure your plan measures up to the state-of-the-art offerings.
With 130 commercial vendors looking to get your company's 401(k) management account, there's always someone out there who will give your company a better deal.
What if your plan isn't as good as it should be? Talk to your employer. For many companies, the 401(k) plan is one of their most expensive benefits. They want it to be good for you too.
What should your plan have? Here's the list of attributes today's competitive 401(k) plan should offer, according to David Huntley, a principal in the Baltimore, Md., consulting firm of HR Investment Consultants.
* Daily record keeping and pricing. You should have an 800 number that you can call whenever you want to find out your account balances or buy and sell investments within your account.
* A person at the other end of the phone. During regular business hours, you should be able to call that 800 number, or another number, and get a live person who can answer questions about investment and loan options.
* Loans by phone. You should be able to borrow against your plan. That's something 80% of plans offer, according to Buck Consultants, a New Jersey benefits consulting company. Huntley adds that you should be able to apply for those loans by telephone.
* A full range of investment options. Buck reports that the average plan offers slightly more than six choices to participating employees.
But it isn't just the number of choices, it's the right ones. Look for at least one balanced fund; a low-risk stable value investment option; a bond fund; a stock fund that specializes in blue chips; an aggressive stock fund that finds small, fast-growing companies; and an international fund.
* Not just choices, but good choices. The funds offered to you should be reasonable performers, though they don't have to be top of the heap.
According to the Institute of Management and Administration, only 30% of the 401(k) investments beat their appropriate indexes in 1995. That may not be so bad. It's typical for mutual funds that must pay management and transaction fees to fall short of pure indexes. But they should at least come close.
To find out if your funds are good, look in all the traditional places, such as magazines and newspapers, to monitor your funds' performances against others with similar objectives.
* Compare funds with their appropriate index.
For example, a bond fund shouldn't beat the Dow Jones industrial average, it should compare with the Lehman Bros. bond index. Compare aggressive small-cap growth funds with the Russell 2,000 index and big blue-chip funds with the Standard & Poor's 500-stock index.
* Your employer should be kicking in money too. First of all, your employer should foot the bill for the administration and accounting of the plan, though you'll probably have to pay management and transaction costs out of your contributions.
But your employer should match some portion of your contributions. The prevailing standard is 50 cents on every dollar you contribute for at least the first few percentage points of your income.
If your employer falls short because it's contributing instead to a different pension plan for you, cut it some slack.
* You should have a little leeway with your employer's contribution. Even if it is all in company stock, you should get the opportunity to sell it if that's not where you want your retirement money invested.
* Good educational materials. Your 401(k) plan should be easy to understand and should teach you something. When you read the newsletter or other correspondence about the plan, it should nudge you to review the investment decisions you make, and possibly change your behavior.
* The contributions should be timely. This means that your money should be deposited far faster than the 90-day maximum currently imposed by the federal government.
Linda Stern is a freelance writer who covers personal finance issues for Reuters. You can e-mail her at firstname.lastname@example.org or write to her in care of Reuters, Suite 410, 1333 H St. NW, Washington, DC 20005.