Star Tribune, Minneapolis, Kara McGuire column: Paydirt: Wish list for better 401(k)

Nov 01, 2009 (Star Tribune - McClatchy-Tribune Information Services via COMTEX) -- WW | Quote | Chart | News | PowerRating -- Data from Fidelity Investments show that more participants increased the amount they were saving in the second quarter of the year than decreased it. And account balances at the end of the second quarter are up 13.5 percent from the first quarter. The market's bullish rise definitely had something to do with that increase; but account values are also up because more people kept contributing than did not, even in the darkest days.

Another positive trend: 401(k) matches are making a comeback. The latest figures from Watson Wyatt show 35 percent of employers are planning to restore 401(k) matches in the next six months. Big-name organizations such as the AARP and American Express are among those that have recently announced reinstated matches.

Still, while things are looking up, let's not squander this opportunity to consider the 401(k)'s flaws. A new Prudential Financial survey found the vast majority of Americans -- 84 percent -- say we need to re-evaluate how we plan and save for retirement. I agree. But I'm not in the camp who believe we should chuck the 401(k) completely. Here is my wish list for an improved 401(k).

We need ...

...more help at work.

Too few workplaces offer education and financial advice to their employees. Far too often, workers sit through a generic presentation about asset allocation after being handed a hefty packet of investment choices and are sent back to their desks to mull it over. When companies do make advice available, it's not always from an unbiased source.

Companies can also do more to help workers save an adequate amount by automatically enrolling workers in their 401(k) and increasing the amount they save each year by a small amount. And they must do more to try to attract those workers who tend not to participate -- low-income workers, minorities and young workers.

...transparent and reasonable fees.

Do you know how much your 401(k) costs? I'm guessing you're familiar with the expense ratio that is charged by individual mutual funds within your 401(k). But did you know there are sometimes revenue sharing fees for marketing and administrative costs that take a bite out of your performance? And that some retirement plan providers will make more money pushing investors into certain funds?

The fee structure of some retirement plans is so convoluted that even the employer offering the plan can't understand it. Most people are already at risk of running out of money in retirement; the financial industry shouldn't speed up the process by charging excessive fees to pad executive salaries. Testifying before the Senate's Special Committee on Aging last week, Barbara Bovbjerg of the General Accounting Office called for expanded fee and compensation disclosures. I'm with her.

...guarantees.

Any near-retiree who took too much risk and lost large sums of money in this downturn is probably yearning for the pension-plan era and the steady paychecks that came for life. The retirement planning industry knows workers are hungry for guaranteed investment options and are devising products to save assets for retirement and convert those assets into an income stream during retirement. One in five Americans will outlive their retirement assets, according to a McKinsey & Co. report. Whether it's with an annuity or retirement plan insurance, Social Security or another guaranteed retirement account run by the government, we desperately need some baseline of income protection in old age. And we need it to be offered at an affordable price.

...to revise expectations.

We've been practicing this one. As the stock market tumbled, workers reevaluated their plans to leave the workforce and retirees adjusted their lifestyle. We need to let go of the image of a 30-year, all-expenses-paid vacation and plan on working longer. With pensions on the outs, Social Security feeling the squeeze and portfolios expected to grow more slowly going forward, it's unrealistic for many of us to raise families, take care of aging parents and still save enough to afford this fabled decades-long retirement we've been hearing about. Companies need to make it easier for older workers to stay employed. We also need to continue to save more, even when the recession ends and the shopping mall beckons.

Kara McGuire writes about money. --She can be reached at 612-673-7293 or kmcguire@startribune.com. Follow her on twitter: www.twitter.com/kablog.

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