Mutual Funds and 401 (k) Plans
Private-sector employee retirement plans are regulated by the Employee Retirement Income Security Act of 1974, also called ERISA. Because the Federal government will guarantee certain employee pension arrangements, it has an interest in ensuring that pensions are run properly. A key provision of ERISA is that the retirement plan sponsor, usually the employer, takes on fiduciary responsibility and must act in the best interests of the plan beneficiaries, even if that is at odds with the best interests of the employer. Companies, looking to get out from under some of the most onerous of regulations under ERISA and other laws, have pushed the onus for making investment choices onto employees through 401(k) plans. In most of these arrangements, employees contribute to their retirement plan using pretax dollars, choosing the investment options themselves. Employers often match all or part of the employee's contribution, but they are under no obligation to do so.
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About the Author
Ann C. Logue is a freelance writer and a lecturer in finance at the University of Illinois at Chicago.