Declare Financial Independence

Mary S., who works at a Northern New Jersey retailer, decided "enough is enough."

Her company's 401(k) retirement plan offers few options, including a stock mutual fund that continually lags behind the Standard & Poor's 500 index, a money-market account, and a low-yielding bond fund. And "you feel almost unpatriotic" if you don't put your money in the company's own stock, she says.

But Mary is switching her monthly contribution from the company stock to a stock mutual fund - the only one her employer offers. She's also thinking of sending a letter to her boss urging the firm to provide better investment choices.

"Independence Day" is being exercised by more and more Americans such as Mary.

The money you invest voluntarily in an employer-sponsored retirement plan, may make or break the fulfillment of your retirement goals.

Time to flex muscles

That's why many benefits consultants say it's about time workers flexed their collective muscles - not only by participating in greater numbers but also by demanding a broader range of investment options and lower fees.

Americans have kicked almost $900 billion into 401(k) plans, the type offered by private-sector companies.

But "for most employees, it is frankly very difficult to assess the quality of the plans being offered," says Mark Rabens, a consultant with Kwasha Lipton, a benefits consulting firm in Fort Lee, N.J.

Two primary issues are involved:

Quality. A plan should be diverse. "At the least," says Mr. Rabens, "it should offer an index stock mutual fund, a fixed-income [bond] fund, a growth fund, and a money-market fund." In the best plans, employers match contributions made by employees. Some match you dollar-for-dollar up to 5 percent of salary, he says.

Costs. Administrative and investment expenses, which have been increasing at many plans, should be as low as feasible without sacrificing quality. Yet fees vary widely. Some plans have fees three times as high as others.

"We recommend employers look for both quality and cost" when choosing plan administrators, Rabens says.

Employers should make comparisons among several plans before picking one plan server. The server could be an insurance company, mutual fund firm, or benefits consulting firm.

Employees, meantime, should compare investment fees, which are deducted from their total return, with those of other company plans, as well as with similar expenses offered to individuals directly.

For example, if the fees for a mutual fund in your 401(k) are markedly higher than for the same fund offered by the fund company directly to investors, ask your benefits administrator to find out why.

Small companies must be especially vigilant about administrative costs, since providers sometimes charge much higher expenses on grounds that the firm has a small investment base.

The good news is that 29 million Americans feel comfortable enough about their 401(k) plans to sign up. The downside is that millions more who could participate do not. "We're just not sure why so many do not," says Martha Priddy Patterson, a Washington-based benefits consultant at KPMG Peat Marwick.

KPMG will release a new survey of benefit plan participants later this month. Preliminary figures, says Ms. Patterson, show that at firms with 200 or more employees, 66 percent of eligible workers are signed up. But that figure is up only 5 percent from a 1993 survey. That suggests that millions of workers are not participating.

The participation rate is even lower with nonprofit firms, whose voluntary plans are called 403(b)s: The rate is slightly less than 50 percent for large nonprofits, she says.

Shift toward stock funds

Still, "more firms are providing a greater variety of options," Patterson says, including stock mutual funds.

Some 41 percent of participants in big-company plans are now enrolled in their equity mutual fund option. That is up from 30 percent in 1994.

Employees participating in company stock plans have dropped from 45 percent in 1994 to about 35 percent now.

But consider two companies where the plans are very different:

At General Electric, 62 percent of employees' money is in GE stock, only 11 percent in stock mutual funds, and workers have only five investment options.

At 3Com, a computer networking company, 0 percent is in company stock, 81 percent in stock funds, and employees have 18 options to pick from, according to Business Week magazine.

Still, whatever the options, Patterson says "as many people as possible should take advantage of their 401(k) or 403(b) plans."

TIP SHEET

* Don't turn away a free bonus. Invest the maximum percentage of your income that your employer will match.

* Invest a large amount in stock mutual funds. Over periods of a decade or more, stocks have provided the highest total returns and outpaced inflation by more than other investments.

* Be wary of company stock plans. There are exceptions, where a company may be an earnings powerhouse like Microsoft. But if you put all your resources in your company's stock, you are at its mercy twice: once with your investments, second with your salary.

* Invest a percentage of your salary, rather than a set dollar amount. That will allow you to keep your investments up to date with salary increases.

* In plans where you can pick between the contribution of "after-tax" dollars and "pre-tax" dollars, pre-tax dollars enable you to reduce the amount of your taxable income while also deferring taxes on earned income.

* Keep year-end (and if possible, quarterly) statements from your investment providers to verify your dollar contributions, as well as the company "match." Make certain your address and personal data, including beneficiaries, are up to date.

* Start early, to allow many years for returns to compound.