A Checklist to Give Your Workplace Retirement Plan Its January Checkup

By now, most of you should have received your year-end 401(k) statements in the mail. And some of you may have gotten year-end bonuses or raises.

Guess what? It’s a perfect time to tune up your 401(k). The beginning of every year “is a good time to step back, to ask yourself if you can sock away another $20 per paycheck or another $100 a month, and to look at how your current investments are allocated,” says Jack Brod, a principal with Vanguard Group’s financial planning services.

Granted, sometimes doing the right thing may hurt--at least in the short term.

Just ask John Murray.

At the start of the year, the 42-year-old Pomona resident, a data networks engineer for AirTouch Communications, followed the best advice of the financial planning community by reducing the amount of employer stock he owns in his 401(k) retirement plan. So he turned in his AirTouch shares when they were trading in the high $60 range and put the money into three different kinds of mutual funds. However, a bidding war immediately broke out for the company, driving AirTouch stock as high as $97.88 a share.

Oh well. “It’s water under the bridge,” Murray said. “I’m satisfied with the selling price and what I made off the stock.” Plus, he notes, “it could have just as easily gone the other way.”

Murray’s attitude is right on target. The point isn’t to try to chase the highest returns you think you can get, never mind the risk, never mind diversification principles. Remember: These are your retirement savings. The point is to make sure that money will be there when you need it.

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With that understanding, here’s a checklist of things you should consider now regarding your 401(k) plan:

* Are you contributing as much to your plan as your company and the IRS allow? If you haven’t been, maybe you can now thanks to a raise or bonus--or just better budgeting. “A 401(k) is the single best investment option for workers,” points out Clark Blackman, national director of investment advisory development for Deloitte & Touche. “You really need to be maxing out.”

Not only is there the tax-deferral aspect, but by failing to contribute to at least your company’s max for a match, you may be leaving free money on the table. About 89% of companies that sponsor 401(k)s now match at least a portion of what their employees contribute, according to a recent survey by Buck Consultants, a New York-based benefits consulting firm.

* When are you maxing out? The IRS limit for tax-deductible contributions this year is $10,000. But depending on how often your company matches your contributions, you could be leaving money on the table by hitting the IRS limit in, say, July instead of December, notes Carol Glickman, director of KPMG’s investment consulting practice in Los Angeles.

For example, let’s say you make $100,000 a year and you’re contributing 15% of your salary to your 401(k). That means that each month, you’re socking away $1,250. At that rate, you will hit the IRS limit sometime in August.

At the same time, let’s say your company is matching 100% of your contributions up to the first 5%. Based on your salary, that means the company will kick in an additional $5,000 a year.

Now, 78% of companies match either every month or every pay period. (For simplicity’s sake, let’s assume one month equals one pay period, though this might not be the case at your company.) This means that every month, your company will contribute $416 to your account. But because you maxed out early and stopped contributing in August, you may not get a match in the final four months of the year. (It should be noted that some companies will make the adjustment for their employees, and in any case, matching schedules vary from company to company. So be sure you know what your company does.)

Had you contributed at a rate of 10% of your salary, you would still max out with the same amount of money, but in December, thereby guaranteeing you’re getting the full match.

* If you have any loans outstanding against your 401(k), pay them back as quickly as you can. Nearly one-fifth of 401(k) plan participants have loans outstanding against their accounts.

“People think that if they take out a loan, it’s not so bad because they’re paying themselves back the interest,” said Meloni Hallock, a partner at Ernst & Young’s financial counseling group in Los Angeles. The problem is, until you pay it back, the money you owe is money that will not be working for you to boost your retirement assets.

* Make sure you don’t own too much of your company’s stock. John Murray’s experience notwithstanding, it’s dangerous to put more than 10% to 20% of your retirement money in company stock, argues Scott Lummer, chief investment officer for the 401(k) Forum in San Francisco, an investment advisory service. It amounts to putting too many of your eggs in the same basket. Not only is your current employment income dependent on this company, but your retirement nest egg will be too.

Also, if your company matches 401(k) contributions in company stock, watch out that the stock doesn’t account for too large a percentage of your 401(k) holdings.

* Determine if you need to rejigger your investments. You may find that your portfolio doesn’t need adjustment. That’s what Nancy Acton, a 26-year-old technical writer who lives in Saratoga, Calif., discovered when she looked at her statement this month.

“I’m happy with my allocation,” she said. Based on her age, she wants to be 100% allocated in stocks, and her four choices--a foreign fund, a large-cap index fund, a growth fund and a small-cap fund--did reasonably well.

The point is, you should at least check to see whether your funds are doing what you want them to, and whether the balance of asset classes is where you want it to be.

And if you’re tempted to put it off, you might want to keep this thought in mind: “We’re all one year closer to retirement or the withdrawal phase,” says Colorado Springs financial planner Jim Shambo.

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Times staff writer Paul J. Lim can be reached by e-mail at paul.lim@latimes.com.