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An excellent TV commercial shows a roomful of employees receiving from a manager the paperwork for their employer-sponsored retirement plan. The manager tells them to read the information, check off their investment choices, and return the forms. The workers have that deer-in-the-headlights stare. When the manager asks, "Are there any questions?" every hand goes up.
The image is so good because it is so real. From the anecdotes that we hear, this situation is common at many US companies. Managing employees to productivity and profitability is plenty tough. Helping them save for retirement is something else again.
Although they usually have the best of intentions, companies don't have the wherewithal to help every employee along every step to retirement nirvana. Most important, they don't want the fiduciary responsibility for individual plans. If they make a mistake and an employee loses a bundle, here comes a lawsuit! A one-size-fits-all pension makes more sense, and the employee can handle his own 401K or 403B.
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Often management hands off the duty to the representative of a fund family or other advisory service. That happened to us in the 1980s. The rep pulled out a list of funds and said the magic word-"diversify." Then he told us that we needed a bond fund and an international fund and an index fund. "Technology's big, so you should have money in that fund." We checked the funds that he suggested, and we never saw or heard from the guy again. He was nowhere to be found when the market and all those funds crashed in 1987. That's when we decided to think and act for ourselves.
Maybe you have decided the same thing and that led you to thr Retirement Funds section, you should be able to find a model portfolio that suits your investing goals and temperament.
First, do a little homework to make sure that your are making the best investing decisions. For employer-sponsored plans like 403Bs, that means going to your personnel department or plan manager and asking some questions. Make sure you know exactly how much you can contribute to your plan each pay period. Remember that workers over age 50 can add more dollars to their account due to "catch up" provisions added to tax law in 2003.
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Most 403Bs offer several families of mutual funds. For convenience or other reasons, a plan administrator might try to steer you into one or two particular fund families, usually the larger ones. That's not always a good deal. One reader was looking at the big companies for her plan until she discovered that our favorite group, albeit a smaller fund family, was also available. It will save her a ton on fees, etc. So make sure that you see every name on the fund list before making a choice.
Speaking of fees, there is a wide range of management fees and other costs associated with the funds that you choose. They can add up and greatly diminish your returns. Since the funds offer essential the same service, it's often a good idea to pick the company with the lowest fees. Also check to see if the company charges an "account transfer fee" for moving in and out of funds on a regular basis, usually in 60 days or less. If you follow the portfolios, you'll make changes depending on market conditions. You want no account transfer fees or the lowest fees possible.
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Of course, you'll want to check the track records of the funds. Returns vary, and the companies are quick to remind investors that solid returns in the past are no guarantee of future success. If you're limiting yourself to index funds, the returns should be uniform across the board.
Once you've made your choice of fund family, put together a short list of specific funds that you are likely to use in your portfolio. The list should include an index fund, a money market fund, an international fund concentrating in Asia, a bond fund or two, and large, mid and small cap stock funds. Keep it simple.
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Then set up your account according to your personal preferences or follow one of the model portfolios, and let the pre-tax salary dollars roll in.
Last, and most important in our view, you should spend about 10 minutes a week monitoring your portfolio. Check your returns and see if any funds are lagging. You'll find our opinion about market direction and whether we're adding to positions, heading to cash, or standing pat. If necessary, you can adjust your holdings with a few mouse clicks or a quick phone call.
Spend a little time preparing for your future today, and you'll never have to sheepishly raise your hand at a company retirement meeting.
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