This is How We Enroll: The Latest 411 on Your 401k

November 10, 2017

For months now, you have been reading (I hope) about how I like to save, invest, and live methodically. Remarkably, my kids, who are now 10 and 11 years old, have reinforced this strategy.

From the get-go, the mantra their child care teachers taught me was that babies, toddlers, and even big kids thrive on structure. I took it to heart. My friends teased me when I told them that we followed the child care schedule for eating, napping, and playtime, even on weekends.

Our financial lives thrive on structure, too. Open-enrollment season for retirement accounts has arrived again for some businesses and will arrive soon for others. Use this time to get organized and make sure you're taking care of yourself financially.

The skipping record of personal finance tells us to contribute enough to our 401ks to receive the company match, if our company offers one. If you put in 6 percent of your salary, for example, perhaps your company might “match” you 3 percent. If you don't contribute that matching minimum, however, then you essentially are not taking money the boss wants to give you. Even if the match is only 1 percent, that is still savings you are passing up.

If someone wants to give me money, and the only “cost” is my having to save, then I am taking it, especially since companies can stop this matching if they choose (within limits) at any time.

Which allocation should you pick on your enrollment form? Should you ask someone from human resources or your colleague in the office next to yours for advice?

I would emphatically say “NO’. The HR staff is not trained or licensed to pick investments, and they do not want to take on that fiduciary responsibility. Your friend's finances, meanwhile, are likely remarkably different from yours. She may be a more aggressive investor or in a better position to weather fluctuations than you are, or perhaps holds stocks outside her 401k.

Everyone is different. Work with a financial advisor or the investment representative that comes to your company during open enrollment. Make the time. It's important!

During open enrollment, your company's investment representative will provide you with an enrollment kit with a prospectus, likely on a CD that will present your investment choices.

Today, investment companies often include “retirement-date” investments as an option. Those plans begin with greater exposure to stocks (equities) than bonds (fixed income), gradually reversing that ratio by periodically rebalancing as the investor gets closer to his or her target date. The default option is often money market, which may not keep up with inflation. Of course, past returns are no guarantee of future returns. The principal value of a target fund is not guaranteed at any time, including at the target date. (You know I had to include my own mantra, right?)

Keep investment expenses in mind. A new Department of Labor 408(b)(2) rule that went into effect in 2012 requiring disclosures by investment managers to their Employee Retirement Income Security Act (ERISA) plan clients. This means that, as an investor, you must now, by law, be notified about how much you are paying for each fund in which you invest. This is crucial information, because the more you pay, the less your return will be.

So, take the time to look at your statements. I have worked with clients who never open their investment statements, either because they are afraid to look at them, lost the password to their online registration, or never set up online access to their statements in the first place. And they are the ones who tend to be the most upset when I present them with their costs!

I also strongly advocate looking at your retirement savings periodically. We regularly review our checking account balances and squawk at bank fees. Do the same with your retirement account fees, taking a close look at what you are getting for what you pay.

Only you can review your statement each quarter and ensure that what you saved has been properly entered and allocated. If it hasn't been, fix it now, because later you won't be able to.

In addition, do you have an old 401k account, with its own set of expenses, that you haven't seen a statement for in a while? Don't quite remember where that account even is? That's your savings! You may be able to roll over that money into an Individual Retirement Account (IRA) or even to your plan with your current employer. Don't let it dangle unattended! Sound cumbersome? Not to worry, I can help you work it out. BC

Annie Morrison is an independent advisor representative with and securities and advisory services offered through Commonwealth Financial Network, a Registered Investment Advisor, Member FINRA/SIPC. Zuma Financial Advisors is located in Reisterstown, MD. Email her, at, or call (443) 468-3280.

If you are considering rolling over money from an employer-sponsored plan, such as a 401(k) or 403(b), you may have the option of leaving the money in the current employer-sponsored plan or moving it into a new employer-sponsored plan. Benefits of leaving money in an employer-sponsored plan may include access to lower-cost institutional class shares; access to investment planning tools and other educational materials; the potential for penalty-free withdrawals starting at age 55; broader protection from creditors and legal judgments; and the ability to postpone required minimum distributions beyond age 70½, under certain circumstances. If your employer-sponsored plan account holds significantly appreciated employer stock, you should carefully consider the negative tax implications of transferring the stock to an IRA against the risk of being overly concentrated in employer stock. You should also understand that Commonwealth and your financial advisor may earn commissions or advisory fees as a result of a rollover that may not otherwise be earned if you leave your plan assets in your old or a new employer-sponsored plan and that there may be account transfer, opening, and/or closing fees associated with a rollover. This list of considerations is not exhaustive. Your decision whether or not to roll over your assets from an employer-sponsored plan into an IRA should be discussed with your financial advisor and your tax professional.

The opinions expressed in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.