BizNet OnLine Magazine, Mr. Money Know' s

Mr. Money - Know' s
By: Dana Goldfarb
Financial Writer
dana@biznetonline.com

RETIREMENT PLANS - A POTENTIAL PROBLEM

The popularity of retirement plans is soaring; especially profit sharing plans like 401 k’s and SEP-IRAs. Since we can’t (and shouldn’t) count on social security to fund our "golden" years, these plans are of immense importance. The problem with these plans - and it’s potentially a big problem - is that you, the future retiree of America, are responsible for making all of your own investment decisions. Well, gee whiz, why don’t we all go out and join a health maintenance organization (HMO) while we’re at it so we can perform our own brain surgeries. O.K., so maybe I’m overdoing it a bit, but can you see my point? Let’s face it, you and/or your employees may have little or no investment experience. If that’s the case, you may have trouble making sound savings and asset allocation decisions. For example, as long-term investors, retirement plan participants typically should have a large portion of their assets in equities (stocks). Yet a great many people have too little money in equities and way too much money in bonds and money market instruments; both of which have historically lower returns than equities. And even if people do have most of their money in equities, it may be incorrectly allocated. Should it be in aggressive growth stocks, foreign securities, blue chip? The list goes on.

You and your employees can’t be faulted for making inappropriate investment decisions. If you’re not familiar with financial-type stuff you might as well throw darts at the Wall Street Journal’s mutual fund page to make your selections.. So why should you be expected to go it alone? You shouldn’t. Heck, large companies like General Motors and IBM have been seeking professional investment advice for years.

So, first and foremost, you should honestly decide whether you can make these investment decisions on your own. If you can’t, an independent, objective advisor can. Their function in life is to help you analyze your needs and goals.

Not only may this advice help you and your employees invest more wisely, but it could benefit you as the sponsor of your plan. As part of the Employee Retirement Income Security Act (ERISA), which regulates retirement plans, you have a fiduciary responsibility to provide plan participants with "sufficient information" to make informed investment decisions. It’s a big enough responsibility to oversee your own retirement finances; don’t take on the added burden of your employees’.

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