All 401(k)s Aren't Created Equal

The Department of Labor is on a mission to improve retirement opportunities in the U.S.  This is sort of a closing-the-barn-door-after-the-chickens-have-gotten-out initiative; but at least it is useful going forward, at least in my view.

Today we are on the verge of the so-called gray tsunami wave of baby boomer retirements. And. many baby boomers aren't positioned financially to retire. They were given control of their retirement assets as companies moved from defined benefit plans that provided a pension to direct contribution plans like 401(k)s, where workers were responsible for deciding how much to invest and how to invest it.

Workers didn't save and invest nearly enough. This, of course, is the story du jour.

Looking ahead, the Department of Labor has cracked down on defined contribution retirement plan providers by emphasizing the need to offer appropriate investment choices and opt-out provisions that automatically enroll new employees unless they opt out, by increasing participation rates, and by requiring plans to disclose all costs in a manner that participants can actually understand.

It will be interesting to see how the latter requirement is implemented. Disclosing costs in the investment business reminds one of a diner choking on a turkey bone. There may be ample opportunity to practice our Heimlich maneuver.

In previous posts, I have discussed the BrightScope site that rates 401(k) plans relative to their peers. They have recently updated data through the end of 2009 from Form 5500 for many of the plans they follow. If you haven't checked your company plan rating in a while, you may want to bring it up.

Participants can use this data in a couple of ways. If, say, their plan's investment menu is rated "poor" relative to its peers, participants should ask the plan administrator (human resources) why. This goes for the other categories as well. In fact, if the participation rate is low, the head of the company should be asking why before the Department of Labor pops in and pops the question.

Secondly, as I have posted before, a married working couple should compare each other's plans. One may have a superior plan and that should be maxed out, after the match is taken advantage of. In some cases it will make sense to forego the company plan and open a traditional IRA or Roth on the side. From a longer term perspective, putting retirement savings in the right place makes a big difference.