The Congressional Budget Office has estimated approximately $2 trillion in losses from retirement plans by the end of 2008. The market decline coupled with insufficient retirement savings has raised red flags. We must all take action to oversee our own retirement savings as, ultimately, it is the participant's responsibility.

Recent market declines have had huge, negative implications, especially for participants nearing or considering retirement. Panic and fear have triggered selling of mutual funds and other investment instruments. To minimize losses, practices need to take a crucial look at retirement plans' investment options and associated fees; but how do you make the right choice?

A vital component of retirement savings is the 401(k). Nearly 55 million people participate in and count on a defined retirement saving plan for their golden years. Most 401(k)s are self-managed, leaving participants on their own to buy and sell investments.

Employers can start by eliminating poor investment choices and plans with high costs and few options for asset allocation. Minimizing plan costs can significantly increase savings in the long run but may come at price with lower customer service. Some financial companies provide lower fees, however they often require a participant within the plan to act as the administrator. These responsibilities can include collection of data and preparation of documents. Preparation can be cumbersome, and unfamiliarity with the paperwork can often lead to delays, mistakes and fines. Plan administrators are often asked to comment on or select investment options, allowing for asset allocation models in addition to long-term monitoring, elimination/addition of investment options, and assuring the plan meets Safe Harbor requirements. Asking these questions in advance can save a huge headache at the end of the year.

While selecting investment choices for a 401(k) plan can be overwhelming, there are some easy tips for narrowing your choices. A reasonable plan will offer several index stock funds, bond funds, electronically traded funds and target-date retirement funds. Electronically traded funds have gained popularity in 401(k) plans given the wide range of asset classes available. EFTs offer lowers costs and allow for greater returns. Research looking at ETFs compared to index and conventional mutual funds found ETFs had fees 0.5 percent lower compared to funds invested in similar asset classes. A 0.5 percent savings over several years can be substantial.

Finally, before selling 401(k) investments in a down market, look at your financial situation to see if the money is really needed. Based on age you may be forced to begin cashing out, so be sure you clearly understand the ins and outs of your particular plan. Prudent review of 401(k) expenses, investment return and adequate choices for asset allocation offer the best opportunity for investment return and retirement security.

No one can see the future, but we can certainly take steps to assure we have all of the information available to us. Understanding your current plan, options and requirements can mean the difference between growth and loss in a given year. Getting answers up front can save time, but more importantly, will save money.


Dr. Cohen and Ms. Hutensky are founding partners of the HC Consulting Group. Contact them at or (312) 972-3488.