3 Easy Steps to Take for a Better 401k

By David Ning on 8 June 2010 (Updated 4 June 2014) 5 comments
Photo: Kameleon007

I was recently invited to a small business 401k checkup meeting, where we talked about how the company's employees were participating in its plan, the overall performance, and fund allocations.

When the representative suggested to hold a seminar on asset allocation, I asked whether she could separate the sessions into different age groups. She said "Oh, that's not a problem. I think that's a very clever idea, but no one has ever asked me to do it this way." The right mix of stocks and bonds is different for someone early in their career versus someone who's about to retire. I'm sure you know this, but it seems like no one else in your company does.

Not the person sitting beside you, not your boss, and not HR. No one knows much about asset allocation other than you. Yikes...

The response was rather surprising. You'd think that everyone would know about asset allocation by now, but that's simply a false assumption. Being immense in personal finance literature has its disadvantages, as we often overlook the fact that most of the general public knows very little about basic personal finance and investing principles.

As a savvy investor who has a much better chance of achieving financial freedom, here's how you can help everyone around you.

Ask

All 401k plans are required to be looked at and discussed on a regular basis. Chances are good that representatives from the company managing your plan comes regularly too. Ask your plan administrators to have the representatives (or bring in experts) give seminars about your plan, the benefits of saving and investing for the long term.

Most of the information they give may be familiar to you, but a refresher is always good even if you already know every tip there is to know. If anything, reminders will make you think about your retirement plan more, which can only help.

Suggest

Offer suggestions to others on how they can contribute to their plan, and perhaps even come up with a step by step plan to navigating the 401k plan web interface. The more comfortable your fellow workers are with the plan, the more likely they will commit more of their salary into it. The benefit to you may not be immediate, but bigger size 401k plans tend to have better expense ratios, which helps everybody in your company.

Monitor

The reality is that most 401k plan administrators have many other more pressing jobs than thinking about the company's 401k plan. As a result, the 401k plan is usually an afterthought of an afterthought. If you think about how important even a fraction of a percent makes in your plan over the years, the likely neglect of your primary retirement vehicle sounds ludicrous. By having more people talk about the plans at work and showing interest, it's that much more likely that your plan administrators will keep a closer tab of what could be done to improve the overall function and performance.

It's not what you expect, but what you inspect. Help keep the plan in the forefront of your plan administrator's minds, and good things will follow. Having said that, I have got to ask: Have you maxed out your IRA yet?

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Carlos Portocarrero's picture

I love stories about these 401(k) meetings...it's amazing how ignorant so many of us are about this stuff. And how the companies running the 401(k)s can get so defensive about what they do. I got yelled at when I started asking questions!

Guest's picture
Darren

Good point. Most plans have an option to automatically rebalance your investments on a quarterly, semi-annual, or annual basis.

But you usually still have to reallocate your investments to lower percentages of stocks and higher percentages of bonds as you age. The plan won't decide these percentages for you.

And I haven't maxed out my IRA yet, but am planning to dollar cost average throughout the year.

Guest's picture

I wish more companies would feature discussions like this. I agree with you that a 401(k) is an easy and relatively inexpensive way to save money for your future. Most people figure this out only too late. Also, great idea suggesting that these meetings be split up into age groups. I never would have thought about this!

Guest's picture

Excellent information! I agree, it's very important that we become proactive in encouraging and promoting the benefits and advantages of a 401k plan to employees. Doing it in split sessions based on age is a very intuitive and strategic idea...kudos

Guest's picture

Thanks for this worthy suggestions. Try to have a good relationship with 401k administrators, and clear your doubts regarding the plan. Proper inspection and monitoring is necessary to get maximum returns out of your plan.