Education, options needed for 401(k) plans

When Congress allowed companies to offer 401(k) plans so workers could set aside money with special tax-sheid rules for retirement, its aim was straightforward: to entice more Americans to save money for the future. At the time, many Americans weren't covered by traditional pension plans and were spending all of their income.

Employees at companies with such 401(k) plans are allowed by the tax code to set aside pretax dollars. The incentive of not having to pay taxes on whatever income is socked away was intended to bolster retirement savings. Sure enough, it worked. Some 42 million Americans now participate in 401(k) plans with assets of about $2 trillion.

But even with the benefits of 401(k) programs, financial analysts still consider the amounts being set aside by most American workers to be far less than those individuals will need when they decide to retire.

Most 401(k) plans allow participants to make choices about how their retirement funds are invested. But a lot of workers aren't well-informed about making investment decisions. Many are still relying on the same investment choices they made when they first began participating in their company's 401(k) programs years ago.

For most 401(k) investors, being a financial whiz wasn't a big factor as long as the stock market and the economy in general perked along over years of solid growth. It was hard to lose money under those circumstances.

But two events last year changed thinking about 401(k) programs.

The first was the souring of the economy. Stock markets fell. Interest rates plummeted.

The second was the collapse of Enron Corp., which focused attention on 401(k) plans whose participants are heavily invested in company stock.

Investing in company stock isn't all bad. Employees at many companies have profited handsomely from such plans while developing a sense of pride at the success of their collective work product.

But provisions in some plans, such as Enron's, that forced employees to hold on to their company stock -- even when it became apparent the value of the stock and the company's future were in dire straits -- produced calamitous results. The nearly 21,000 participants in Enron's 401(k) plan had about 63 percent of their assets invested in company stock as recently as two years ago.

Now Congress is looking at changes to protect 401(k) investors in the future. The ideas that seem to make the most sense are those that require more investing education, allow more diversification choices and permit the dumping of company stock if it goes sour.

Clearly, there are a lot of American workers investing in 401(k) plans who need more information about investing in general and their investing options in particular.