401(k) founder: My creation is "a monster"

Ted Benna, called the "father of the 401(k)," created the first employer-based retirement savings program 30 years ago, but recently told Smart Money magazine he feels like his creation has turned into a "monster."

Benna said the offerings of the modern day 401(k) plan are too complex, and Congress should overhaul the system before it turns off too many people.

So until changes are made, what can you do to address his criticisms of the employer-based retirement savings program, which replaced pension plans for millions of Americans? CBS News financial contributor Carmen Wong Ulrich shared the following advice to help you control your 401(k).

Benna's Criticism #1: 401(k) plans are too complicated, with too many choices.

Your solution: Educate Yourself.

  • Post-2008, employers have made substantial efforts to increase free access to 401(k) plan administration, education and advice. Schedule a meeting with your plan administrator to learn more about the options in your 401(k).

  • Research your asset allocation. Where is your money, actually? Is a "fixed income" fund where you really want to be? Try the free "portfolio X-ray" at Morningstar.com which will give you a good idea of just how risky or not your portfolio is compared to others.

  • Compare your 401(k) to others in terms of fees and choices. You may not be able to change employer, but if you see that you are getting slammed by fees and few choices to invest, you can contribute up to your company match and then find and fund another IRA (like a Roth IRA) with much lower fees and more choices. Find out where your 401(k) lands in terms of cost and choice at Brightstar.com.

Benna's Criticism #2: People are turned away by the complexity.

Your solution: Don't turn down free money.

  • The Pension Protection Act of 2006 made it allowable for employers to automatically enroll employees into 401(k)s. Automatic enrollment into 401(k)s has raised the number of enrollees. However, that doesn't mean you're off the hook in terms of paying attention or understanding where the "free" money is.

  • There is "free" money in tax savings. Remember, 401(k)'s put away your pre-tax earnings -- think of your tax bracket and just how much more you're able to put away if it's not taxed. For example, when you earn $100 you may only see $70 in your paycheck but, you'll see the full $100 in your 401(k). That money gets to grow tax-free, only to be taxed when you withdraw in retirement.

  • There is "free" money in your company match. For many full-time employees benefits can add another 20 percent on top of your current salary, which includes for some a company match to 401(k) contributions. The company match equals additional earnings. At least contribute to a 401(k) up to your company match, even at $.75 to the dollar -- those are more untaxed earnings to add to your retirement savings. Not to sign up means turning down money.

Benna's Criticism #3: Too many opportunities for self-sabotage.

Your solution: Develop a plan-and stick to it.

  • Many 401(k)s offer company stock as an investment option. Be very careful as getting both your paycheck and investment gains/losses from one employer/one company is not good diversification. Don't put more than three percent to five percent in company stock. (Remember Lehman Bros, Enron, and dozens of other companies whose stock became worthless -- best to not risk being both out of a job and out of retirement savings.) Diversify.

  • Avoid speculating with your 401(k) by moving money in reaction to daily market swings.

  • Develop a re-balancing plan/schedule. Making allocation/investment choices and then sitting on them for years doesn't make any sense. Your plan choices need to match both your time frame and your needs. If you're close to retirement, you shouldn't have too much in stock mutual funds. If you're just starting and have decades to save, you can afford more risk. The market has been changing more recently than it has in decades, so consider reviewing your portfolio every quarter to make sure you're comfortable with where you're at. Also, consider using a financial planner even for one consultation to make sure you're on the right track. It's money well spent.

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