401 K Plans

The Securities and Exchange Commission has requested data from mutual fund firms about how and why they pay to be included in 401(k) plans. Fidelity Investments, Putnam Investments and T. Rowe Price Group confirmed that they recently received an inquiry from the SEC about practices related to so-called defined-contribution retirement plans. The plan providers all said they were cooperating with the agency.

The Enron meltdown has put 401(k) reform at the top of Congress' agenda, but experts say the proposed remedies don't address many of the shortcomings of the suddenly controversial retirement plans, such as low worker participation and high fees charged by plan administrators. "This whole debate [in Congress] is reactionary to Enron. It is not in any way strategic," said Dallas Salisbury, president of the Employee Benefit Research Institute in Washington.

Just days after many of the nation's 401(k) investors learned how much they really lost in the third quarter, new data show a significant shift of money out of stock funds and into more stable options within the company-sponsored retirement plans.

Small investors are pouring into stock and bond mutual funds in record numbers, which in turn is keeping the stock market up and bond yields down. On Wall Street, however, there is less celebration of this phenomenon than there is concern about what horror will follow it. If this tsunami of cash reverses, the logical fear is that stock prices will plunge and interest rates will jump.

Companies already are loosening restrictions on workers selling company stock in their 401(k) plans as scrutiny of retirement plans increases after the Enron Corp. debacle. International Paper Co. and newspaper publisher Gannett Co. recently said they will allow employees to sell company stock in their 401(k) accounts much more quickly than has been allowed. San Francisco-based ChevronTexaco Corp., the nation's second-largest oil company, said it will make similar changes in April.

Last month, John Smith's employer got out of the pension planning business. That put Smith, whose name has been changed for this article, in a sticky spot. Smith, who has worked for the firm more than 20 years, assumed that he would get a set monthly stipend when he retired. Now the amount and the duration of that payment will depend on how well he invests the $80,000 his employer distributed to him when the company dissolved its pension plan.

The Labor Department said Tuesday that it wouldn't endorse the use of so-called stable-value funds as a default investment for 401(k) participants who don't decide how to allocate their retirement-plan portfolios. The decision is a blow to the insurance industry, which markets stable-value funds. The new rules, which go into effect at the end of December, were adopted under a 2006 pension law that Congress passed to help Americans build up retirement funds.

Automatic enrollment in 401(k)s, an increasingly popular strategy used by companies to raise workers' participation rates in the savings plans, may hurt employees rather than help in the long run, according to a study released Tuesday.

The fact that government-mandated 401(k) plan reform appears to be stalled shouldn't discourage workers from contributing to these plans--and contributing as much as possible, experts said. Though the system may not be perfect, financial advisors maintain that 401(k) plans remain one of the best options workers have when it comes to saving for retirement. And this year, new rules allow employees to contribute even more to these programs. In 2002, workers can contribute up to $11,000 to a 401(k).

Century City-based Northrop Grumman Corp. and Chicago-based Boeing Co. have joined the list of major companies being sued for allegedly allowing their employees to be overcharged in their 401(k) retirement plans. The suits filed by St. Louis attorney Jerome J. Schlichter last month allege that the employers broke federal law by failing to ensure their workers are charged reasonable fees for management of the plans. Previously named in the suits were Lockheed Martin Corp., General Dynamics Corp.