- The Washington Times - Monday, February 25, 2002

Teri Wright has had a 401(k) plan for seven years. Yet regardless of how the stock market has performed in that time doubling her investments or bleeding cash she has never changed her initial investment.
Mrs. Wright, like millions of Americans, does not actively manage her 401(k) accounts, a fact that worries educators and lawmakers more than ever in the wake of the Enron collapse. The failed energy giant left thousands of workers with little or nothing in their 401(k) plans, because many were heavily invested in company stock.
"I opened it and just let it stay," says Mrs. Wright.
Mrs. Wright, a D.C. resident who works for an education nonprofit group, thought about going to a financial adviser but never followed through. Her workplace offered some educational information about investing, but she didn't look into it.
"A lot of people say 'I don't have time for the education, things in my life are too busy, just tell me what to do,'" says Shaun O'Brien, senior policy analyst with the AFL-CIO, a federation of the nation's largest labor unions.
A casual survey of Washingtonians strolling through Dupont Circle on a recent afternoon revealed that many don't know as much as they should about how their retirement plans work.
That is the case of Jim Ebner, who at 66 has never learned about investing and has always relied on two of his sons one an accountant and another who works with Wall Street for advice.
"I can't even read the stocks in the newspaper," concedes Mr. Ebner, a D.C. resident who recently retired after a 30-year career in public health. "I just have no interest in that activity, but I know it's important."
Mr. Ebner's retirement savings have grown to about $100,000 over the last 12 to 15 years. Yet when asked if he knows how the plan works, he shakes his head no.

Much confusion
About 55 million Americans had 401(k) plans last year. Yet surveys find that high percentages of plan-holders have numerous misconceptions about their accounts and about investing in general.
A survey conducted by the National Center for Policy Analysis, a District-based nonprofit research institute, revealed that about half of respondents did not understand mutual fund or bond investments, and did not know that they could lose money through such investments.
Nearly 20 percent said they did not realize their retirement savings could shrink if they invested in stocks and the market plummeted.
Perhaps more startling in the wake of Enron is the finding that respondents generally believe investing in one company is less risky than having a diversified stock portfolio. Most financial advisers say diversity in investments is critical.
Congress has conducted a number of hearings since the Enron debacle to call attention to what some investment companies call "financial literacy" problems, and to craft bills to better protect retirement savings.
Federal Reserve Chairman Alan Greenspan told Congress earlier this month that financial education should be started at an early age.
"Improving financial education at the elementary and secondary school level is essential to providing a foundation for financial literacy that can help prevent younger people from making poor financial decisions that can take years to overcome," Mr. Greenspan told lawmakers.
Such a feat would take years to accomplish, says Dick Toikka, chief economist at the Employment Policy Institute, a nonprofit group in the District that deals with employment issues.
Still, he and other educators and consumer advocates hope that after the Enron fiasco people will pay more attention to their 401(k) quarterly statements and will have learned basic investing principles.
"Enron should do much to educate the average American," Mr. Toikka says. "It will help them remember that the No. 1 principle of investing is diversification, and No. 2 is that the degree of risk has to be consistent with a person's age and their investment objectives."

Growth of 401(k)s
Retirement savings investment plans, or 401(k) plans, were started in the late 1970s. Until then most retirements plans were defined-benefit pension plans, which are ensured by the Pension Benefit Guaranty Corporation. The PBGC is the federal agency that provides a specified amount to employees if the employer or its pension plan goes under.
Many Enron employees had 401(k)s and defined-benefit plans. During the past decade, however, employers have increasingly switched to 401(k) plans as main retirement savings vehicles. This appealed to employees because the stock market was booming and workers who had their retirements savings in 401(k) plans saw their nest eggs grow considerably.
But, says the AFL-CIO's Mr. O'Brien, the main reason employers prefer 401(k) plans is because they can shift more of the investment responsibility onto the workers. As they shifted the burden, many employers began to offer their employees financial education or access to investment advisers.
But that is risky business, says Mr. O'Brien, because if the workers lost money on those investments they could blame the company for giving bad investment advice. So many employers remain detached from their 401(k) plan offerings.
A survey by the Profit Sharing/401(k) Council of America, which represents employers with 401(k) plans, revealed that very few of the workers who have access to education take advantage of it.
"It really is a twofold problem, where people need to be taught how important it is to actively manage their 401(k) plans," says Nan Mead, spokeswoman for the National Endowment for Financial Education (NEFE), a Denver-based nonprofit group that promotes financial literacy.
"Secondly, they need to be taught how to do that," she adds. "Until that first issue is addressed, the second one is going to continue being a huge problem, as we all saw with the Enron situation."

Smart investors
Many Americans are quite savvy about managing their retirement accounts.
"I guess I have had it bashed into my head since I was recently graduated from college that I need to start saving for retirement," says Matt Foster, 29, who moved to the District for a job at a conservation nonprofit, which provides a 401(k) plan. He enrolled, and went to see a financial adviser to help him decide where to invest. He was happy with his investment choice, but when the market plummeted last year his stocks did too, shrinking his retirement savings. Still, Mr. Foster says he has learned about investing.
"I guess I learned about diversification starting in an high school economy class and then more when I spoke to the mutual fund people and my uncle, who kind of spurred on this whole initiative with me," he says.
Juan Carlos Ayub, an American Airlines flight attendant, says there is no excuse for not understanding investing these days.
Mr. Ayub, a resident of Dupont Circle, is an avid reader of business periodicals. But even he has had losses when the market performed poorly.
"Last year was awful," he says, adding that he has since sold riskier stocks and invested more of his money in safer mutual funds and bonds. "But I'm 33, so I have at least another 30 years or more before retiring."

Teaching investing
Young people are targets for groups like NEFE, which has been promoting financial literacy to schools for 10 years. Yet even through partnerships with national financial associations and large corporations, the program only reaches about 400,000 students a year at about 3,000 schools nationwide.
NEFE's high school financial planning education is based on a 156-page workbook that each student gets for free, if a school decides to teach the program. The course is 10 hours long and it's integrated within existing courses such as economics, business or social studies.
The District-based National Council on Economic Education (NCEE) offers a similar program. NCEE targets not only teachers and students, but parents as well.
"In order to help reinforce what the children are learning in school we've developed a guide for parents so they can feel comfortable working with their children at home with homework," says Claire Melican, the NCEE's vice president for program administration.
Locally, Baltimore is looking into adopting the program at its schools, says Ms. Melican. And last month a group of 69 schools from the region sent students to a NCEE financial literacy workshop that was held in the District.
Financial literacy advocates point out learning about 401(k)s is not that hard. But there has to be the desire to learn on the part of the workers, says Mr. Toikka.
"The way financial products are structured now, they really shouldn't require that much knowledge and sophistication," he says.
But while most of the older workers interviewed for this story regretted that they had not learned about investing, they said that education efforts should focus on younger generations.
Older people just don't learn as easily, and often they just don't want to, says Jon Grey, who has had a 401(k) plan for about 13 years but still doesn't know about investing.
"I think it would be great if they teach young people this stuff," he says. "It makes more sense than to try and tell people my age because some of us have never been exposed to this before and have never thought about it."
At age 56, Mr. Grey attributes his retirement savings plan's success to the advice of his son, Steve, who studied investing in college and often helped his father make investment decisions.
"I didn't think about retirement for a very long time it seemed like something so far away," says Mr. Grey, who lives in the District. "But now it's coming up, and I find myself looking through my 401(k) plan statements."

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