Dan Klein runs the 401k plan at a small New Jersey hazardous-materials company, so when it comes to investing advice, he's the go-to guy for his co-workers. Ask for help, and he'll explain the difference between stocks and bonds, value and growth. He might even suggest a portfolio. It's fun, Klein says, adding, "I probably should have been a financial planner."
Klein does have a midcareer MBA, but he went to school for chemical engineering and spent much of his working life cleaning up toxic spills. Nine years ago, he traded up to the brickyard view from the vice president's office. One of his first initiatives was to start a 401k plan for the company's 26 employees, and he aggressively encouraged everyone to sign up.
"I only wish someone had done it for me," Klein says.
Now he's in charge of not only the company's financial operations but also his colleagues' retirement security -- a far cry from his days in a hazmat suit.
With the economy and the markets showing tentative signs of a rebound, millions of Americans are focusing on their 401k plans with fingers crossed, hoping to make up the estimated $3.7 trillion that employee retirement accounts lost during the crash. But at all except the biggest companies, the men and women watching over those funds need no special qualifications, no investing expertise and no investment experience.
In practice, the job often falls to the company president, a human-resources manager or a committee of employees -- in other words, people who are experts at something else. At one $54 million construction company in Idaho, the company's founder runs the plan. His main qualification? Four decades in construction.
Ultimately, these people have authority over which funds will be offered, what fees employees will pay and how much education and advice workers will get. "Your performance depends on the decisions they make," says Mike Alfred, the CEO of BrightScope, a California company that rates 401k plans.Of course, few managers are truly flying solo. Nearly all hire brokers or consultants to suggest funds and make sure their plans comply with the law. Some administrators devote long hours and take courses to bone up.
But critics say that retirement planning has become too complex to be left to amateurs and that even hired help needs oversight. Brokers, for example, are not legally required to pick funds with low fees, so 401k plan managers who sign off on pricey funds could cost their workers tens of thousands of dollars over the long haul.
"They're trying to do the right thing," says Teresa Ghilarducci, the director of the Schwartz Center for Economic Policy Analysis at New York City's New School. "But they're not as competent as investment advisers."
This arrangement has come under periodic attack, and it's facing another wave of criticism now as baby boomers struggle to recoup lost savings and Washington buzzes about reforms. But with 465,000 managers out there running 401k plans -- under virtually no regulatory supervision -- no solution will be easy. And given that large companies usually hire in-house experts to run their plans, the ad hoc nature of smaller companies' plans can get overlooked in policy debates.
So for the moment, workers at companies with fewer than 1,000 employees, which account for more than 90% of the nation's labor force, must count on the resourcefulness of whoever happens to be running their plans.