Some have bemoaned the failure of 401(k) plans to provide for our retirement. Proposals have been made to Congress and in the media concerning a revamp or even a complete abandonment of the system.

Certainly, the current markets have been tough on both 401(k) participants and on the employers who sponsor them, and it should come as no surprise that some participants - especially rank-and-file employees - are finding it more difficult to contribute. Lower employee participation not only impacts those individuals' retirement safety, but can also cause employers problems with 401(k) non-discrimination testing.

But rather than taking drastic measures as a knee-jerk reaction to relatively short-term market performance, maybe the positive aspects of the current system should be considered. During times like these, it's imperative that participants remember the importance of saving and adhere to a sound asset allocation strategy. And employers should consider 401(k) plan designs beyond the norm that can help pass non-discrimination testing, as well as help employees accumulate retirement savings.

INDIVIDUALS: STAY THE COURSE

401(k) investing principles haven't changed. A few fundamental concepts need to be reinforced with plan participants confronting markets like the present:

* Bear markets don't last forever.

* 401(k)s favor long-term investors.

* Selling now locks in losses.

* Selling makes it less likely that a participant will participate in market rallies.

* Asset allocation is important.

* 401(k) savings are secure from the employing company's possible financial insolvency.

Proactive and ongoing communication can be critical to soothing the nerves of 401(k) participants today.

1. Bear markets don't last forever. Substantial recoveries have occurred after previous bear markets. The average return in the 12 months following a bear market is 45 percent.

2. Participate in market rallies. A large amount of market recovery tends to occur in the first few months after a bottom. If those rallies are missed, a 401(k) participant's rate of return could suffer substantially. For example, if a participant was not invested in the first six months of the rallies following bear markets, the average rate of return would have dropped from 45 percent to 12 percent.

3. Pay attention to your asset allocation. Studies have shown that over 90 percent of portfolio volatility is attributed to asset allocation. A proper asset allocation can help reduce risk while potentially providing a solid long-term rate of return, as shown by a look at the past 10 years' performance of a simple 60 percent stock/40 percent bond asset allocation versus placing 100 percent of an investment in either asset class.

4. Your 401(k) savings are safe. 401(k) savings are held in a segregated trust, separate from employer and recordkeeper corporate assets, and are protected from creditors. In the case of financial insolvency, neither the creditors of those involved with the plan nor a participant's creditors can claim 401(k) savings.

EMPLOYERS: TAKE A LOOK AT PLAN DESIGN

In a typical traditional 401(k) design, the employees elect to make contributions while the employer makes some matching and maybe some profit-sharing contributions. That design is beginning to fall by the wayside as the advent of automatic 401(k) features, the decline of pension plans, and the need for more significant savings through 401(k) plans cause 401(k) programs to evolve.

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