Wednesday, January 21, 2009

Pension Plans vs 401(k)s

Last week, I read this article about how an employee is more “protected” by a pension plan compared to a 401(k) plan. It reminded me of one of Ben Graham’s closing lines in the Intelligent Investor – Investment is most intelligent when it is most businesslike. When you think about it, those companies offering a pension plan treat it in a very businesslike manner. The company has accountants, lawyers, investment managers, custodians, administrators and actuaries; in short a whole team with different roles, responsibilities and skills. They think about things like are they saving enough money, how much will have to be withdrawn at various times, what might their investments reasonable earn over time. They even have insurance form the Pension Benefit Guarantee Corp that ensures at least some level of the benefits for employees if the company goes bust. Of course, all that does not guarantee success but I think it makes success more likely.

Compare that businesslike approach to how you are managing your 401(k), which may be one of your most valuable assets. Are you spending enough time thinking about those questions, about your investments, savings rates and withdrawal needs? If not, you may want to get some help too!