Is your 401(k) O.K.? Two Part Series ---------------------------- Airdate Feb. 25 Part One Airdate Feb. 26 Part Two

For many Americans, employer-sponsored savings plans have become the most important and powerful tool for building a retirement nest egg.

Along with medical insurance, it has become one of the key benefits of employment.

The savings plans come in an alphabet soup of labels - IRAs, SEP IRAs, SIMPLE and others. But the most popular is the 401(k), named for the paragraph of the Internal Revenue Service Code that authorizes its existence.

For many workers outside of government, the 401(k) and plans like it are gradually replacing traditional pension plans as the primary source of retirement income, according to the Employee Benefit Research Institute in Washington.

Traditional pensions, known as defined benefit plans, guarantee workers a fixed monthly income in retirement, funded by the employer who takes all the investment risk. If the stock market crashes, the employer is required by law to contribute enough money to cover all current and future pension obligations. If the employer goes bankrupt, a federal agency insures the fund.

In a 401(k), known as a defined contribution plan, nothing is guaranteed. How much the worker gets in retirement depends on how much the worker and his employer contribute, and how well the investments do.

From the employer's point of view, 401(k) is an attractive alternative to the old-fashioned pensions. It's less expensive and shifts the investment risk to the employee.

The 401(k) offers advantages to employees, too. It reduces taxable income by the amount employees contribute to the retirement plan, and the employer matches a portion of the employee contribution.

It also gives the employee the full benefit of a booming stock market, which is lost in a defined benefit plan.

Still, it thrusts the responsibility of preparing for retirement on the employee.

``Are people saving enough? You will be hard-pressed to find someone to say yes. The near universal consensus is that people need to do more,'' said Paul Yakoboski, a researcher at the EBRI.

``The missing link is that the overwhelming majority of workers have no idea how much they need to accumulate. So, they are flying blind,'' he said. ``If you ask them if they are saving enough, they couldn't answer. They have no basis for an answer.''

It's daunting - and there is little help.

Here are some tips on 401(k) investing, and some information about what makes a good 401(k):

-- Tampa financial adviser Laura Waller says you should put as much into your 401(k) as possible - the maximum, if you can afford it, to take full advantage of the tax shelter.

For most plans, that maximum is 15 percent of income. The maximum runs as high as 25 percent in some companies, notably Columbia/HCA Healthcare Corp., which employs about 9,300 people in 10 Tampa Bay-area hospitals.

``It really depends on your cash-flow needs. The maximum is the ideal, because it's tax-sheltered,'' Waller said. But for employees who can't afford that, ``they ought to get as least as much as the company matches.''

Young workers, who need the income for first homes, first cars and first children, may want to contribute less to retirement. Still, they should put away as much as they can. At 25, even a small contribution will generate a large nest egg, and make retirement savings easier when they reach their 50s.

-- For most employees, the most attractive feature is the employer match. In general, high company match correlates with high employee participation.

The most generous plans match the employee contributions dollar-for-dollar. In a survey of 20 large Bay-area employers, the most generous match belongs to Barnett Banks Inc., which matches dollar-for-dollar up to 6 percent of the employee's income.

Nationally, the average is 50 cents per dollar up to 6 percent of employee income, which is typical for most Bay-area employers.

-- A key decision for employees is how to invest. By law, 401(k) plans must offer at least four investment choices. Some offer dozens, plus the company stock. The Tampa Bay area's largest private employer, GTE, offers 16 investment options.

Normally, investment options range from super-conservative money market funds, which offer low returns around 5 percent but nearly no chance of losing money, to emerging market or high technology stock funds, which are very risky but offer the potential for huge returns.

What's right for each investor depends on age, retirement plans, and tolerance for risk. Workers who can't sleep if they think they may lose money should not be investing in Asian emerging markets.

In general, the longer you expect to wait until you use the money, the more risky you can afford to be.

Waller said a time-honored rule of thumb still works: Subtract your age from 100, and invest that proportion in stocks. Put the rest in bonds. Then readjust the funds annually.

So if you're 30, put 70 percent of your 401(k) in stock funds, and 30 percent in bonds. At 60, and just five years from retirement, most of funds should be in safe, reliable bonds. Still, there should be some stocks in the portfolio.

At Home Shopping Network in St. Petersburg, the company recently improved its match and expanded the investment options from six to 14. The result was a 10 percent increase in participation, said Benefits Manager Kristi Marckese.

While those are the keys for most employees, there are other aspects that employees should watch:

-- The makeup of the company match. Most employers provide the match in cash, which allows the employee to invest it at their discretion among the plan options. Some, however, provide the match in company stock, which is inherently riskier and may not be appropriate for people who do not deal with risk well or are close to retirement.

Some companies tie the match to company profitability, but that applied to just one in the Tampa Bay area, TECO.

-- Eligibility and vesting. Eligibility is how long a new employee must be there to begin making a contribution. Most major employers allow it immediately, but some make a new employee wait a year. The vesting requirement describes how long an employee must work to own the company match. At some, employees must stay seven years to be fully vested in the company match. Those who quit before then give up all or part of the company match.

-- Borrowing and emergency withdrawals. Most plans allow employees to borrow a portion of the value of the plan. By law, the upper limit is $50,000 and 50 percent of vested value. Some plans impose stricter limits. Most in the Tampa Bay area allowed the legal limit.

-- Other benefits. Some companies offer what appear to be stingy 401(k)s, but reward employees in other ways. Profit sharing and employee stock ownership programs can supplement self-funded retirement plans. Jabil Circuits in St. Petersburg provides no company match for its 401(k), but provides a profit-sharing plan, based on the performance of the employee's production plant.

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