Retirement

New rules on 401(k) investment diversification, get your eggs out of one basket

Hey, I'm putting the money in, what do I know about investing?

If your employer matches your 401(K) contributions in company stock, new rules issued by the IRS on May 19 are effective for plan years beginning on or after January 1, 2011.  These rules provide that plan participants must have the option of moving the money from the employer stock fund to other funds at least once each quarter (or as often as the plan permits for changes in other funds).  At least three alternative funds must be available for diversification. 

The rules are likely to have minimal impact on most plans as employers already permit this type of diversification, typically on a daily basis, especially for large plans.  Companies made changes to their plans following the Enron debacle several years ago.

Unfortunately, employees more often than not do not follow sound advice when it comes to diversification of their investments in 401(k) plans and are generally inclined not to move from a company stock fund or to have their account well diversified.

The truth is that most people spend more time buying a new pair of shoes than they do thinking about or planning for retirement.

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Categories: Retirement

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