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Tuesday, March 17, 2009

Five Ways to Fix Up Your 401(k) Plans

WSJ.com

By ELEANOR LAISE

In the midst of a market meltdown and economic crisis, many Americans' 401(k) retirement plans are looking a bit bedraggled. But some tender loving care from plan participants, employers and policy makers can help spruce up these accounts. ...

[Savings Slowdown Chart] Tim Foley

Lawmakers and employers already are looking at ways to improve the 401(k). ... But you don't have to wait for change to come.

You, your boss and Congress can start fixing up 401(k) plans today. Here's how:

1 Save till it hurts …

... Think you can't save any more? Ask your payroll manager to calculate what your paycheck would look like if you boosted your 401(k) contribution, suggests Christine Benz, director of personal finance at investment research firm Morningstar.

"The percentages might seem daunting, but if you look at it in dollar-and-cents terms, you might find it's something you could easily implement," says Ms. Benz.

2 … Even with no match.

... If your employer has suspended the match, you should boost your own contributions to make up for it. Together, the employee and employer should contribute at least 10% to 15% of the worker's salary to build a healthy nest egg, retirement experts say.

The maximum amount most workers can contribute to a 401(k) this year is $16,500. Workers age 50 or older can contribute an additional $5,500.

3 Set it and forget it.

Sharp market swings can lead 401(k) savers to make some poor investment decisions, like fleeing stock funds simply because they've taken a dive. Investors who dump stocks at depressed levels lock in losses that could take a big bite out of their savings.

People who leave the asset-allocation decisions in the hands of a professional don't have to worry about making emotional investment decisions in rocky markets. ...

4 Pay attention to fees.

Hefty fees can put a lot of cracks in your nest egg. ... You should be able to see the total dollar amount you're paying in plan fees so you can compare the 401(k) and other savings vehicles such as an IRA, Ms. Benz says. ...

5 Get more workers saving.

Many companies don't offer 401(k)s, and many workers who do have the opportunity to invest often simply don't.

More and more employers are automatically enrolling workers. But many of these efforts focus only on new hires. They should also include existing employees. What's more, many workers don't have access to a 401(k). The costs and administrative burdens can be daunting for small businesses.

One solution might be for the government to make it easier for small employers to band together to offer workers 401(k)s, says Paul Stevens, president and CEO of the mutual-fund industry trade group the Investment Company Institute.

Email: forum.sunday03@wsj.com