How To Avoid The Potholes In 401KS

Want an attention grabber for the next barbeque on the patio? Just say "my 401(k)," and heads will turn. The 401(k) is now ubiquitous in Corporate America.

Yet there remains vast ambiguity about responsibility for the 401(k). Under the old pension system, the corporation made all the decisions. In the new world of 401(k)s, the individual is supposed to take charge. Yet the corporation retains significant legal liability if future retirees find that their 401(k) money is insufficient. Labor Dept. rules hold companies liable for choosing sound investment options and educating workers about them.

This obviously suggests that companies would be wise to fully inform all workers of the critical role that 401(k)s play in their retirement plans, clearly disclose investment performance, and offer a significant array of options. Providing only company stock, as many do, could prove costly. Above all, companies should make sure that all their employees sign up.

Before it's here, it's on the Bloomberg Terminal.