Newsweek Cover: '5 Ways to Fix the 401(k)'

Newsweek Offers Five Ways to Save the Dwindling Retirement Accounts of

Millions of Americans; 'Change is Essential Now That

401(k)s Have Become the New Safety Net' Writes Jane Bryant Quinn

Aug 11, 2002, 01:00 ET from Newsweek

    NEW YORK, Aug. 11 /PRNewswire/ -- During the bubble years, investing
 looked like a piece of cake. Now savers are billions of dollars behind with no
 road map for catching up.  Change is essential, now that 401(k)s have become
 the new safety net, writes Contributing Editor Jane Bryant Quinn in the August
 19 Newsweek cover story, "5 Ways to Fix the 401(k)" (on newsstands Monday,
 August 12). "We need to be protected from our own mistakes," Quinn writes.
 "Back in 1974, Congress rescued workers who were losing their pensions in
 ill-run or bankrupt plans. That cycle has come around again." Her remedies:
     (Photo: )
      Limit the Choice of Funds: Most people spread their money over three or
      four funds, no matter how many different options they have. But the
      greater the choice, the greater the risk that you'll pick a poor
      investment mix. Quinn suggests two models for a "perfect" 401 (k). One is
      the Thrift Savings Plan, run for federal workers. "This kind of
      plain-vanilla saves you from obsessing over six different growth funds.
      Instead, you focus on the decision that matters most to long-term
      success -- namely, how much of your money to allocate to various types of
      Don't Bury Workers in Company Stock: The more you own of a single stock,
      the more potential trouble you're in, especially if your job is tied up
      with that company, too. Quinn writes that she wouldn't let anyone hold
      more than 10 percent of his or her 401 (k) money in company stock. That's
      the legal limit for traditional pension plans, to keep lifetime payouts
      Put the Squeeze on Easy 401(k) Loans: The average borrowing rate today
      has reached 18 percent of all participants -- but that climbs to
      23 percent among those with low or moderate incomes. "That partly defeats
      the purpose of having a savings plan," Quinn writes.
      Provide Independent Investment Advice: "By advice, I mean real advice. A
      place, a phone number, a person, a Web site where savers can ask the
      essential question "What should I do?" she writes. Good advice might even
      be worth companies paying for it and shaving off some of the company
      match. Alternatively, plans might find ways of cutting costs, in order to
      make room for personal help.
      Push Everyone Into the Pool: While it's no fun losing money in your
      401(k), the far greater problem is that people aren't saving enough to
      start with, Quinn writes. Companies could help by signing up workers for
      401(k)s automatically. The employee could always opt out, but thanks to
      inertia, most would stay. A handful of companies are already providing
      automatic accounts.
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