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Common Participant Mistakes Made With 401(k) Plans and How to Prevent Them

Participants make the following mistakes when managing their 401(k) account balances:

1. Not reviewing fee structure of funds selected for investment
2. Failing to re-balance investments on a regular basis
3. Not taking advantage of employee deferrals or employer matching programs for contributions
4. Changing jobs and closing out a retirement account and paying a tax penalty , instead of rolling over the funds to their new employer’s plan or an IRA account
5. Not allocating among different types of investments (stocks, bonds, commodities and cash) or leaving too much money in low interest accounts
6. Numerous trades on individual securities
7. Taking loans against their account balances for ordinary living expenses

What can an employer do?

1. Employers should educate their participants on how to review fee information provided for each investment option and to make use of investment information offered by 401 (k) service providers
2. Employers could include low cost funds as plan options
3. Employers could offer default investment options with a low fee structure
4. Employers could offer target date funds that automatically rebalance
5. The Pension Protection Acts permits companies to automatically enroll employees. Employees can choose not to participate
6. Plans can be designed to automatically increase yearly employee contributions
7. Employers can institute Safe Harbor Plans which offer defined matching contributions to participants and reduce plan testing requirements
8. Employers should make sure their plan allows rollovers

Keeping employees and attracting new talent requires management to offer more than competitive salaries. Employee benefits are key to enhancing employee loyalty and having qualified candidates accept employers’ job offers over their competitors.

Please contact the Gettry Marcus Employee Benefit Plan Group if you have any questions: Howard Fine hfine@gettrymarcus.com