Why We Make so Many Mistakes With our 401(k) Plans Business 2.0 (06/02) Vol. 3, No. 6 p.146; Belsky, Gary
About $1.6 trillion of workers' savings are invested in 401(k) plans, but Enron's collapse has shown that retirement savings are far from safe. In fact, a diverse portfolio is the staple of all investment advice, but employees have ignored this rule of thumb. About 69 percent and 84 percent, respectively, of Texas Instruments and Procter & Gamble 401(k) investments are in company stock, which is good at the moment considering that the stocks are beating the market. But Coca-Cola Enterprises stockholders have seen half of the company's value be whittled away over three years, leaving workers with 32 percent of their 401(k) assets and less money than anticipated for retirement. Companies use tax incentives as an excuse to make matching contributions in stock, but employees are another hindrance to the plans' success because they fail to change their contribution rates and investments periodically. In fact, 80 percent of new plan enrollees stick with their default investments, and 50 percent remain with them for three years. A majority of 401(k) investments are made in money market funds, which may not generate enough for retirement. Most investment advisors state that the percentage of retirement savings in stocks should equal the difference between the investor's age and 100.