Don't Like Your 401(k)? Speak Up

Do your homework and you just might persuade plan execs to shake up the mix

Most accept an employer's 401(k) plan as a fait accompli. Not Harry Kathirvel. The engineer, 30, frequently speaks up about the 401(k) plan at his company, Voith Siemens Hydro, a manufacturer of electric power equipment with North American headquarters in York, Pa. And those who oversee the plan often take note. Just over a year ago, at the suggestion of an employee committee that advises it on its 401(k), Voith added a large-cap fund after Kathirvel and others had criticized the performance of the one already in the plan. More recently, it has placed a second fund on "watch" for possible termination. "Investing is often the topic of our coffee chats" Kathirvel says of colleagues.

While no one wants to raise the ire of the people who sign their paychecks, you can't afford to remain silent if your employer-sponsored 401(k) has high fees or investments that lag. Even a percentage point or two difference in returns or costs can add up to thousands of dollars in lost retirement savings, especially for younger workers such as Kathirvel.

If you're dissatisfied with any of your 401(k) options, now is a good time to press for change. Thanks to recent lawsuits over employee losses in 401(k) plans at WorldCom and Enron, among others, "the environment is right for employees to at least get a hearing," says Paul Bracaglia, a partner at PricewaterhouseCoopers in Philadelphia.

But don't think you can simply dash off an e-mail to your benefits department and get satisfaction overnight. Unless you're in a collective bargaining unit, you have little power, other than the power of persuasion, to change your plan, says Chris Bowman, a vice-president at Principal Financial Group, which provides 401(k) plans to businesses and individuals. To maximize your odds of success without ruffling feathers on executive row, you have to be diplomatic, persistent, and persuasive. "If your request has been well-researched, it's more likely the plan sponsor will consider it and get back to you," says Joseph Valletta, a partner at HR Investment Consultants.

Before starting a campaign, ask yourself if the change you're requesting will suit the needs of more than just a few people. Sure, you may want a hot sector fund, such as energy or gold. But your employer is unlikely to add a new option unless it covers a broad asset class that the plan currently overlooks, such as non-U.S. stocks.

It's also a good idea to get up to speed on your plan. Fund names alone don't always explain how their managers invest. You may think your plan is lacking, say, a mid-cap stock portfolio when in fact one of its funds includes that sector. You may also want to ask the benefits department for a "summary plan description," which spells out the plan's key operating rules. If your 401(k) uses regular mutual funds from, say, Fidelity Investments, T. Rowe Price (TROW ), or Vanguard, you can get the expenses from the prospectus or the firms' Web sites. But if it invests in customized, commingled funds, your employer has to tell you what they cost. In any event, ask your employer if you're bearing any additional administrative expenses.

Then look at how your 401(k) plan compares with those offered by the average company (table) -- or better still, a competitor. You'll have more leverage if you can show that what you want is widely available elsewhere. Likewise, back up your arguments. Document poor performance with data or support a request for new fund options with research. "I armed myself with academic studies showing the diversification benefits of adding small-cap, value, and international exposure," says M. Shawn Bjerke, a biology instructor at Minnesota State Community & Technical College in Moorhead, Minn., who expects his plan's trustees to approve up to a dozen new funds soon.

Be patient, since most 401(k)s have bylaws that prevent decision makers from making snap changes. The "investment policy statement," available at your employer's discretion, lists the criteria the plan uses to select, monitor, and delete funds. For example, it should say how much time has to elapse before the plan can remove an underperformer.


Take advantage of surveys and other tools that provide feedback on your 401(k). If you feel your request isn't being taken seriously, contact someone with responsibility for the plan. At a small company, that may mean collaring executives named on the "summary plan description" in the hall. Otherwise, ask your benefits department for a name. "Someone I found in the employee directory forwarded my e-mail to the right guy," says Andy Ciavarella, 43, a Wantagh (N.Y) cable splicer at Verizon Communications (VZ ). His gripe? His 401(k) won't let him sell the Verizon stock he gets as a company match until age 50. "It makes me nervous to have so much in one stock," he says. Because the match is negotiated in his union contract, Ciavarella has taken the matter up with the union.

Your employer may find it hard to ignore your suggestion if colleagues back you. So speak to the investing enthusiast down the hall. If your company has a 401(k) advisory committee similar to Voith's, reach out to members. When Kathirvel approached his, they invited him to join. "Create a critical mass," says Bowman, who recommends communicating in writing since "this creates a paper trail the employer can use to track interest." Since companies often review their plans every three months, ask for a response within that period.

In your pitch, emphasize what everyone has to gain. Mike Ostrander, comptroller at Springfield (Ill.) law firm Kanoski & Associates, recently sold a new 401(k) lineup to his boss in part by pointing out that the law usually lets top brass save the maximum allowed -- $15,000 tax-free -- only when employee participation reaches certain levels. What better way to press your case than by appealing to your employer's self-interest?

By Anne Tergesen

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