Q: On this mornings news (7/31/01) I heard something about 401K in the workplace and that if the employer only contributes up to 3%, that this is not a very good contribution on the employers part. I didn’t get to hear the whole thing and would like to know more about it.

A: Someone wrote in saying that their employer’s 401(k) only option for investment is in a 6% front load fund. The employer matches 3%, but since the fund is so expensive, the viewer only contributes 3% and then does a Roth IRA. She asked if this was a good strategy, given the expense of the fund.

I expressed my outrage that an employer would even off a fund with a 6% load and suggested she spend her time gathering all of the other employees together to demand better choices. I said that the 3 percent match was nice, but in this case, would only effectively lower the fund load to 3 percent, which was still outrageous.

I have 401k plan at my work place which invests only in front loaded mutual funds. Load is about 6 percent. My employer matches up to first 3 percent of my contribution and I am am currently vested 60% of employer’s money.

Q:Currently I contribute only 3 percent to my 401k because of the load and just to take advantage of maximum employer match.

I also have Roth IRA which I have contributed maximum to. Here are my questions: Is this strategy ok? Does it make any sense to increase my contribution? If so how much? Or I will be better off quitting 401k and contributing to regular IRA next year?

A: Shame on your employer for investing in a 6 percent front load fund. You should invest your time in gather up employee support to change the mutual fund offerings. Do some research at www.morningstar.com and identify other places to invest your cash. Then, petition your employer to make this change.

As for your investments, I can understand why you’d be hesitant to invest more in your employer’s plan. Try to do whatever investing you can outside your official retirement accounts, and sock away whatever you can. If you can persuade your employer to change investment firms, then you can resume adding as much as you can to your 401(k).

Jan. 1, 2005