Are You Running Your 401k? Are You Sure?

The Wall Street Journal published an article by Eleanor Laise that highlights an increasing practice by employers.  Taking more-and-more control of employee’s retirement accounts.

“The greater employer control is a philosophical shift in 401(k)s and other defined-contribution plans, which held $3.5 trillion at the end of last year. The new, more-paternalistic approach, with employers making most of the decisions, resembles a defined-benefit pension plan. But unlike a pension plan, individuals bear all the investment risk.”

The author points at a father-figure desire of employers to help employees manage their investments better.  In some cases this might be true, but some of the pressure is coming from the investment firms that manage the money.

“Fund firms and plan providers say the moves are necessary to get hands-off 401(k) savers on track for a secure retirement. Left to their own devices, some workers invest far too conservatively, others too aggressively, and many don’t save nearly enough.”

The real risk is that employers will not consider each investor and make broad-stroke moves that could pull some investors out of aggressive funds at a bottom or move them to more-conservative funds at the top of a cycle potentially creating devastating losses or preventing natural recovery of a battered fund.

“Indeed, many participants were moved from conservative stable-value funds to stock-heavy target-date funds last year as their employers switched default investments, exposing people to losses that they may not have otherwise suffered”

These typical target date funds have a date that is intended to mark when the investor will retire.  The investment mix in the fund is intended to be less-aggressive as the target-date approaches.  Unfortunately, the market is not only volatile while we are young.  In the case of last years financial collapse, being able to jump into a stable-value or other conservative investment could have benefits the 20-somethings as well as the 50-somethings.

Take a look at your 401k and make sure that you are truly the one running it.