Your 401 (k) Is Making a Statement

Says Cherry, who's done 401(k) meetings full-time for seven years: "I had one guy stand up at a meeting and ask, 'Which fund has Budweiser in it? Because my neighbor drinks a lot of Budweiser, and I want my money in that fund.' " At this meeting, a waitress signs up for the 401(k). She tells Cherry that she did not sign up last time because at that meeting, "someone told her that if you invest in Coca-Cola, and the company breaks, you can lose all your money."

Cherry works for a small Atlanta company, Total Benefit Communications, which has provided 401(k) literature not just in Spanish, but also in Polish, Vietnamese, and Navajo. Cherry is one of 14 children of Mexican-immigrant parents with second-grade educations. She often starts meetings with her own background as a means of reassurance and connection.

"For these people, taking $10 out of their paycheck and telling them they're not going to see it again for 20 years -- that's a leap of faith for them. They look right at me and say, 'I've never seen you before.'

"I tell them the money is theirs, that it does not matter where they retire -- even if they leave the country. I tell them it doesn't matter if you're in housekeeping and they catch you sleeping on a bed one day. The money is yours."

As Cherry is packing up, the head of HR for the hotel comes up to ask a question. This woman has been at the hotel for 18 years, she's been in the 401(k) for 12 years, and she's recently taken out a loan for a car. Now, her contributions are going to repay the loan she made to herself. She's not adding anything beyond that to the account.

Her question for Cherry: "How can my account go down if I'm not investing, if I'm just repaying the loan? Can the balance go down when the stock market goes down anyway?"

Cherry turns to look at the woman, one of whose jobs is to explain her company's 401(k) to her employees. The question is startling in its ignorance: Of course the balance can go down, depending on where you've invested it and what the market does. But with a question like that, from an HR professional who has had her own 401(k) for 12 years, where do you begin?

At the other end of the employment-and-education spectrum, I tracked down a half-dozen former WorldCom employees who had their 401(k)s wiped out by the fraud at the company. The only WorldComers who had their 401(k)s wiped out had those accounts loaded with WorldCom stock -- which had been enthusiastically encouraged, but totally voluntary. WorldCom offered a wide range of 401(k) investment options; no one had to hold WorldCom stock.

To a person, the folks who bought WorldCom stock did so because they had faith in their company and because they thought the stock was, as advertised, a rocket ride to riches. Although they violated a fundamental rule of investing -- perhaps the fundamental rule of investing, that you don't put all your eggs in one basket -- they feel a sense of betrayal, of having been defrauded.

That's understandable. They invested on the basis of lies. But here's the truly remarkable thing: To a person, the ex-WorldCom employees acknowledged that even if an investment counselor had come to them before WorldCom unraveled and individually explained how dangerous and foolish it was to have their entire retirement in a single stock, it wouldn't have mattered.

Says Karen Fallek, now a disciple of diversification, who saw her 401(k) go from $90,000 to $4,600: "I would have said, 'No, I'm not going to miss the opportunity to ride WorldCom.' "

When it comes to making decisions about money, emotion is a bad thing and ignorance is a bad thing. But remarkably, we often manage our money with a dangerous mix of emotion and ignorance -- with some stubbornness tossed in for good measure.

The 401(k): Behind the Numbers (III)
There are many myths about 401(k)s. The most popular myth is that cheap corporations have dumped their regular pension plans, with comfortable benefits, for threadbare 401(k)s.

A close second in the myth department is that there was a golden era of pensions, sometime after World War II, but before we started working, when people worked for the same place for 30 years and then got a check for the rest of their lives.

The most dangerous myth is that if you just put aside 6% and you're getting that 3% match, you're in great shape.

In fact, many large companies that offered pension plans -- "defined benefit" plans -- when 401(k)s were made legal now offer both. There has been no rush to abandon pension plans, according to numbers gathered by the well-regarded Employee Benefit Research Institute (EBRI). In 1974, the number of workers who had vested pension benefits coming to them was 9.4 million. Twenty-five years later, in 2001, the number of workers who had vested pension benefits was 9.4 million.