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That's what lawmakers did as part of the Pension Protection Act of 2006. The good news is that Congress did –- ultimately -- put some curbs into the law on who can give advice to the nation's 401(k) investors, and how, so the financial services foxes won't have total run of workers' retirement henhouse.
Congress said the advice must take one of three forms to protect employers from liability, according to Dallas Salisbury, CEO of the Employee Benefit Research Institute:
- Computer programs. Advice providers can use software that has been "blessed" by an independent third party, and they can't fiddle with the output (to make it favor their own company's mutual funds over others, for example).
- Managed accounts. Retirement-plan providers can implement the advice that comes from such a software program and take care of rebalancing the employee's portfolio. Again, the provider isn't allowed to fiddle with the software's recommendations.
- Flat fee. Advice providers can give recommendations as long as the investment options all cost the same. This is meant to prevent providers from favoring high-cost funds that can better line their pockets.
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Consumer advocate David Certner thinks big employers probably will do a pretty good job of vetting advice-givers and making sure their workers are getting reasonable, unconflicted guidance. Certner, the legislative policy director for AARP, worries more about small companies, who tend to be less sophisticated and more dependent on what their 401(k) providers tell them.
"They're more likely to let the providers handle everything," Certner said, even if their workers are the ones who ultimately suffer.
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Is your pension safe?Many companies are freezing or dropping pensions. Here's what to do if it happens to you.
If you do nothing else . . .
Whether or not you're offered advice by your employer, you should take the following steps:- Invest enough to at least get your full company match. There's really no excuse not to take your company's free money. Even if you're repaying debt or trying to achieve other goals, you need to save for retirement, and taking full advantage of a company's match is a good way to start. If your company has no match, you should still put every dollar you can into its plan. Ideally, workers in their 20s should be saving at least 10% of their incomes for retirement; those who wait to start saving until their 30s or 40s should be contributing 15% or more.
- Don't let your contributions languish. Rather than letting your money sit in "safe" options like bonds or cash, investigate your company's "no brainer" options, such as lifestyle or target maturity funds. These options make your asset-allocation decisions for you and rebalance your portfolio automatically. If your 401(k) doesn't offer these options, you can pick a basic balanced fund, which spreads your money among stocks, bonds and cash.
- Don't overdose on company stock. It's a bad idea to have more than 10% of your portfolio in any single stock, and that includes your own company's shares.
- Consider getting a second opinion. Individual investors can use Financial Engines' advisory service for about $40 a quarter. If you want personal hand-holding, consider making an appointment with a fee-only financial planner. The Garrett Planning Network is one service that offers fee-only planners who charge flat fees or hourly rates for portfolio reviews.
Liz Pulliam Weston's new book, "Easy Money: How to Simplify Your Finances and Get What You Want Out of Life," is now available. Columns by Weston, the Web's most-read personal-finance writer and winner of the 2007 Clarion Award for online journalism, appear every Monday and Thursday, exclusively on MSN Money. She also answers reader questions on the Your Money message board.
Updated Jan. 4, 2008
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