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Ninety million American workers have a company sponsored 401k retirement program. The percentage of large businesses that offer 401k plans is 98 percent, while the percentage of the small businesses that offer a 401k plan is close to 62 percent. A partial explanation for this disparity lies in the time, expense and effort small business owners must expend in order to put a plan in place and maintain it. But, over the course of the past five years, the number of small businesses offering 401k plans has grown by more than 20 percent.

There are multiple reasons why more small business owners are entering the 401k arena. First of all, small business owners want to have a retirement nest egg that is in addition to their company’s equity. Next, offering a 401k plan helps small business owners to attract quality workers that would have otherwise gone to their competitors. Last, but not least, there have been significant changes in 401k plan service providers that have significantly reduced the cost and effort required to institute and operate a 401k plan.

The Gallup organization has spent decades studying the impact that the employee’s relationship to their employer has on the growth and profitability of the business. After decades of tracking 17 million workers, Gallup concluded that there are three types of employees. The first and most desirable is the engaged employee, because they feel a connection to the firm and are passionate about what they do. The second type of employee, and the most common, is the not-engaged employee. They check-in, go to their workstation and drift through the day waiting for the closing bell to ring. The third type is the actively disengaged. These people are miserable at what they do. They have a toxic attitude toward the company, and given an opportunity, will undermine the company’s efforts.

There are many factors that lead workers to become engaged employees and access to a properly functioning 401k is high on that list. Gallop’s most research found that eighty-one percent of employees they polled said that a 401k retirement plan is an important workplace benefit. Sixty-seven percent of workers are more likely to stay with an employer that offers a 401(k).

Spending your golden years enjoying the good life starts with building a solid nest egg as soon as possible. A wise man once said, “It is not a tug of war when everybody is pulling in the same direction.” So, it behooves both the employers and employees to work together to make their 401k retirement plans both effective and efficient.

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The Wizard of Oz is a story about a girl from Kansas, who gets sucked up in a tornado, connects with a bunch of odd ball characters and follows a yellow brick road looking for a benevolent wizard. When they get to the wizard’s palace, they pull back the curtain and find that the wizard is nothing more than a con man from Omaha, Nebraska.

40 million Americans own at least one target date fund in their 401K account. What began as a simple, low-cost investment vehicle has evolved into a complex and expensive one. In this episode, I will peel back the curtain on index funds and explain them in a manner that inexperienced investors can understand.

Target-date funds were created in the early 1990s. The goal was to provide investors with a simple, cost-efficient mutual fund that matches the changes in their risk profile as they age.

In their early format, TDFs were formulaic and passive. Formulaic and passive funds don’t generate big fees, so it didn’t take long before marketing departments of Wall Street started burning the midnight oil, and the underlying mutual funds in TDFs began to change from passive, inexpensive index funds to more expensive, actively managed funds.

An article in the Wall Street Journal document the most recent change in the TDF saga. Over the past decade, the pressure to cut fees has intensified and employers that sponsor 401k plans have drifted away from some mutual funds. Instead, they have been selecting Collective Investment Trusts. CITs are pools of assets offered by banks, and trust companies that are only available to retirement plans such as 401ks.

Does this mean that 401k participants should avoid Target Date Funds at all cost? No. When properly applied, TDFs have the potential to be the best fund solution for a portion of the 401k population. My goal is to alert 401k participants and their plan providers of the need to do a complete and through due diligence before finalizing their investment decisions.

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In my last episode, I made some disparaging remarks about golfers and 401K plan participants. I start this episode with a reader's digest version of my prior commentary. Then I provide a discussion designed to enlighten listeners on how and why to become better managers of their hard-earned retirement dollars.

A golfers handicapped helps them evaluate the quality of their game. There are similar benchmarks that help us evaluate various aspects of our everyday life. There are tables that tell us if we are a 6-foot male, we should weigh 200 lbs. There are Government standards that tell us our two-ton SUV should get 27 mile per gallon. My Cheerios box tells me that when I eat a cup of cereal, I have consumer 45% of the amount of sugar I should consume in a day.

90 million American workers have invested $15 trillion of their hard-earned money in stock market mutual funds. And just like the benchmarks discussed above, there are many who have no clue about the precise amount of return on their hard-earned retirement dollars and how to compare that to what is possible.

For most stock market gurus, the benchmark for investment performance is the return of the S&P 500. Over the course of the past 2 ½ years, in spite of all that’s been thrown at it, the S&P 500 has gained 58.6%. A S&P 500 index fund provides investors that same return for a one tent of one percent fee and no assembly required.

There are two other lesser used stock market indexes that some financial experts also use as a proxy for the market; The Dow and the Nasdaq. Their performance for the same time period as I quoted for the S&P, were 44.3% and 73.4% respectfully. A divergence from the return of the standard set by the S&P that is worthy of note. Both have index funds that, just like the S&P 500, mimic their performance.

My goal for this episode is to motivate you to do your homework and put a hard number on your investment return, not just “Doing OK.” Then and only then can you answer the question; Do I know as much about the performance of my 401k as I do my golf score?

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