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Over the past few weeks, there has been a notable deterioration in the correlation between the price action of the Japanese yen and traditional risk-related assets like equities.

This relationship has been utilized and exploited for nearly 18 months as investors and market participants have used the this currency as a gauge for general risk sentiment while others have used it in a kind of cross-market pair trading strategy. Now, traders are left to wonder whether this is a natural recession in a very obvious market link or a sign that the Japanese currency is losing its status as the primary FX safe haven.

The History
Before, we delve into forecasting the future of the yen’s link to safe haven flows; we must first understand why the market has come to expect the correlation to be so strong. Looking back before the current financial and economic crisis, the markets were enjoying a boom period where capital was prevalent, leverage was the standard and rates of return were high. This led seasoned and novice traders alike to the now infamous carry trade. Utilizing leverage, these market participants would borrow in a low interest bearing currency and invest in a higher one. During the height of the boom, the Japanese yen was the primary ‘funding’ currency as the Bank of Japan was forced to keep its benchmark lending rate under 0.50 percent for over a decade thanks to a lack of inflation in the economy. Comforted by the market’s deep liquidity, the flow of capital behind this strategy grew exponentially.

In the summer of 2007, when financial conditions started to deteriorate and the global economy began to yaw, the carry unwinding began. As investors took losses in their other positions, they were forced to liquidate their carry trades to raise cash to buffer dwindling reserves. This matched losses in traditional asset classes to a steady repatriation of yen. Pessimism has proven to be enduring, and the sheer size of the carry trade has supported a long-lasting deleveraging of the once high-flying strategy. Other considerations that have come into play for the yen’s status as a safe haven during the market’s plummet were borne out of economic truisms. Japan is the second largest economy in the world; and therefore, expectations that it would survive and recovery from the shock are greater than some of its counterparts. What’s more, the country is known for large capital surpluses. As a saver nation, liquidity was not considered a problem for Japan. These three considerations served the currency well, until recently.

The Fundamental Break From Safe Haven
The Japanese yen was supported by its well-established carry status and fundamentals for a long time – producing an envious correlation between the currency and the Dow Jones Industrial Average (among other risk related assets). However, with a global recession taking hold and extending the financial slump, we may have seen the market conditions outlast the yen’s staying power.

As the most certain driver for the risk/yen link, the carry trade is also the most ambiguous in its turn against the currency. There will be a natural point to which the built up yield-differential trade will be fully unwound. There were finite funds put into this strategy during the boom years; and therefore, there will be a time when these speculative funds are repatriated. It is difficult (if not impossible) to determine when this deleveraging is complete; but 18 months of forced liquidation and the potential for capital losses in holding a long yen-based cross has at the very least cleared the bulk of the funds. This point has likely come and gone, and speculative momentum behind the move have since taken over for actual flows. Therefore, we merely needed a catalyst to break this trend – and economic health may have been that trigger.

With the carry trade’s influence over the yen waning, its correlation to risk trends was riding on expectations that speculation would maintain its course and Japan’s economy would drawing the market’s capital on its own accord. A critical look at the yen fundamentals now, however, casts the stability of the economy in doubt. Just this past week, the government released its fourth quarter GDP figures which pegged the year-over-year pace of contraction at a staggering 12.7 percent – the sharpest decline since 1974. Such an aggressive decline was not unexpected. Domestic consumption trends have long suffered from a lack of income growth and a consumer base that is renowned for its savings; while foreign demand for Japanese exports has shrunk as the global recession deepens. Far more disconcerting are the forecasts for growth in the world’s second largest economy. The Bank of Japan’s top economist has said first quarter GDP could be “unimaginable;” and growth through 2009 is expected to shrink a record 4.0 percent on an annualized basis according to official forecasts. Add to this the trouble that Japanese policy officials have found in reaching an agreement on much-needed stimulus plans, bailouts and liquidity injections; and both growth and financial health severely undermine safety of funds.

Has The Yen Lost Its Safe Haven Status For Good?
Though we have seen the role of the Japanese yen as a safe haven currency come under strain; does that mean it will lose this global function for good (or at least this market cycle)? Yes and no. As a strict safe haven, there is little to revive the currency’s draw. Most of the carry deleveraging has been spent. There is still something to be said about Japan’s long-standing capital surplus and the economy being the second largest in the world; but this holds little appeal considering the direction it is going. Japan is expected to suffer a far deeper slump going forward and the lack of needed government intervention to this point will likely put the nation behind the recession curve (on which the US, Euro Zone and even the UK are likely ahead on). And, though large surpluses help to establish confidence in liquidity and cash in the economy, this is no longer a key issue for the rest of the world as massive injections of liquidity in the banking system have stabilized overnight lending on a global basis.

On the other hand, while the yen is losing its safe haven status; it is not likely to lose its place in the carry trade. When global growth does turn around and interest rates start to entice macro investors back to the carry strategy, the Japanese target cash rate will no doubt hold near its incredible lows – and market participants know it. With long-lasting deflation and a glut of domestic savings, there is little to drive the benchmark rate higher. In contrast, Australian, New Zealand, the UK, the Euro Zone and even the US (to a lesser extent) have a history of quick recoveries and central banks that are more apt to respond through monetary policy. This means, investors will once again draw funds to invest elsewhere to take advantage of the carry and further enjoy the natural appreciation int eh exchange rate.

Who Will Replace The Yen In The Short Term?
Looking down the line, the return of the carry trade is likely a long time off; so those that were trading the yen as a safe haven will have to find an alternative in the mean time. There are two popular options: the US dollar and Swiss franc. The latter currency has enjoyed the status of carry trade and safe haven for quite some time. As a relatively low-yield currency with a central bank that typically deliberated on rate shifts only once a quarter, the Swiss currency was a natural source for funds. And, with an economy that prizes low taxes on funds and privacy, its safe haven status was secure – that is until recently. Just this past weekend, EU leaders gathered to develop a coordinated plan to answer the ongoing economic crisis; and one of their policy points was identifying and sanction tax shelters like Switzerland. This clearly leaves the franc in a state of limbo. The dollar on the other hand, has seen its safe haven status intensify with time. Though its recession is expected to worsen with time, US policy officials have taken broad steps to turning growth around – likely putting the US well ahead of the curve. This secures interest in the market’s favored risk-free asset: Treasuries. And though Fed Chairman Ben Bernanke has forecasted the US holding its benchmark interest rate at low levels for an extended period, speculators no doubt still expect returns on traditional assets to growth unimpeded with the rebound in investor confidence.

Written by John Kicklighter, Currency Strategist

They might not be the richest people in the world, but these billionaires have tremendous sway over the world’s markets, workers — and, in some cases, armies.

The authority and influence Michael Bloomberg wields is staggering.

As mayor of New York City — America’s largest and most complex metropolis — he lords over more than 8 million people speaking 40 different languages within 305 square miles. He commands 311,000 city employees and an annual budget of $60 billion.

Since being elected in 2001, Bloomberg has resurrected New York from the wreckage of the 9/11 attacks, seized control of the city’s schools, enforced a ban on smoking in bars and restaurants, and taken serious strides to make the city a leader in energy efficiency.

On any given day, he might negotiate a workers strike, coordinate various law-enforcement agencies’ efforts to combat terrorist threats or handle another crisis (like, say, a commercial airplane crashing into the Hudson River).

And he paid for this job. Bloomberg left his massive media and financial information company, Bloomberg LP, in 2001 to effectively buy City Hall when he chipped in $74 million of his own cash to run for mayor. (He threw in another $85 million to keep the gig four years later and recently convinced New York’s City Council to allow him to run for a third term this year.)

While he’s been mayor, Bloomberg LP has grown. Today, the firm has 10,000 employees in 126 global offices, providing most of the world’s trading floors with financial data. Bloomberg’s 88% stake in the company helped push his net worth to $20 billion last fall, making him one of America’s richest men.

This combination of wealth, media influence and political prowess lofted Bloomberg atop the annual Forbes list of the most powerful billionaires in the world.

Last March, there were 1,125 billionaires in the world, each wielding tremendous wealth and weight over the markets and industries in which they operate. But few plutocrats possess the money, economic dominance and political clout to touch — or the potential to touch — all of us.

To compile the list, Forbes reporters created a formula based on the size and scope of the industries billionaires control, the political influence they exert and the fortunes they hold.

Behind Bloomberg is Italian Prime Minister Silvio Berlusconi, who heads a nation of 58 million people, a diversified industrial economy with a gross domestic product of $2.4 trillion and a military budget of roughly $43 billion.

Berlusconi’s company Fininvest is a player in life insurance, movie production and sports teams. It also controls much of the Italian television market.

As the worldwide recession deepens and industries look to governments for help, a prime minister can have serious sway over the stock market. Shares of Italian automaker Fiat soared 6% earlier this month after Berlusconi pledged aid to the Italian auto industry.

Billionaires with political power are rivaled by those who control portions of the commodities markets. Indian industrialist Lakshimi Mittal controls 10% of the world’s steel production through his company ArcelorMittal; despite his fortune falling $24.5 billion between March and November 2008, he ranks third on our list.

Other moguls lord over portfolios of companies. Warren Buffett, through holding company Berkshire Hathaway, controls more than 50 companies that had a combined $118 billion in sales in 2008. He ranks fifth.

Throughout the credit crisis, Buffett injected much-needed capital into ailing companies. His $5 billion investment in Goldman Sachs last September caused shares to leap 6%. He pumped billions more into General Electric and Swiss Re. Even President Obama has turned to Buffett for economic advice.

Perhaps no billionaire has more control over how America spends its disposable cash than Oprah Winfrey. Her daily talk show airs in 141 countries and reaches more than 46 million viewers. With Oprah’s approval, an unknown book instantly turns into a bestseller, and getting a product endorsed on Oprah’s Favorite Things show can be the crowning achievement of a marketer’s career.

According to research compiled by two University of Maryland economics professors, Oprah’s endorsement of Barack Obama lent the candidate an estimated additional one million votes in the 2008 Democratic presidential primary.

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While the dollar exhibited incredible volatility this past week; for the most part, the increase in price action would not come with any defined direction from the world’s most liquid currency. Instead, the majors would further carve prominent wedge formations that will ultimately demand breakouts and a decision for direction some time soon – and that resolution may come this week.

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While the dollar exhibited incredible volatility this past week; for the most part, the increase in price action would not come with any defined direction from the world’s most liquid currency. Instead, the majors would further carve prominent wedge formations that will ultimately demand breakouts and a decision for direction some time soon – and that resolution may come this week. First, we need to take a look at price action to understand the building stress behind the markets. Both EURUSD and USDJPY have worked their way into terminal wedges that will force the market into a decision. However, from a fundamental standpoint, these two pairs highlight very different roles for the US dollar. When measured against the euro, direction will come from a bias in growth forecasts. Far more unique among the majors, USDJPY pits the market’s top two safe haven currencies against each other – and long-held rules may change.

It is well known that the Japanese yen is the go to currency for safety of funds concerns. This has been the case for more than a decade as Japan has kept its lending rates at or near zero (deriving an anti-carry interest) and the economy has floated large surpluses and savings. However, with global interest rates plunging towards zero and world-wide growth expected to hit its worst pace since WWII; investors are left to rethink where their capital is safest – and where it could also generate return when conditions do turn around. For the United States’ part, there little room for yields to deflate any further (they are also near zero). More importantly, though, they are far ahead of the curve on efforts to stabilize the domestic markets and economy. Constant liquidity injections, government guarantees, critical bailouts, proposals to draw out toxic debt that is clogging the credit system, the introduction of massive stimulus plans and endeavors to develop regulation for the long-term make for a strong foundation that few other economy’s can match. It is simply a matter of time before these cumulative stimulus catches up with the greenback.

The safe haven dynamic of the world’s most liquid currency (backed by the world’s most liquid ‘risk-free’ asset) has been a clear driver in all of the majors outside of the yen’s purview. However, as global policy makers attempt to put out the fires and interest rates near zero; we are slowly seeing a shift away from panic to growth. With global interest rates quickly approaching zero and more than three months of congestion under the market’s belt, fundamental speculation is focusing on gauging the world’s economies’ position on the recession curve. For those that are looking at relatively shallow and short contractions (and therefore expected to recover first), investors see the potential for return when risk has been fully exercised. The US is certainly a ways off from finding a true bottom in its own recession; but compared to Japan and the United Kingdom – its prospects look much better. Alternatively, when set against the Euro Zone, we are met with real debate. We will keep an eye on the round of second-tier data due this week, but the true shift in sentiment will likely be more closely linked to the efforts of the government to recharge the economy. – JK

Written by John Kicklighter, Currency Strategist

Who’s next?

With consumers shutting their wallets and corporate revenues plunging, the business landscape may start to resemble a graveyard in 2009. Household names like Circuit City and Linens ‘n Things have already perished. And chances are, those bankruptcies were just an early warning sign of a much broader epidemic.

Moody’s Investors Service, for instance, predicts that the default rate on corporate bonds – which foretells bankruptcies – will be three times higher in 2009 than in 2008, and 15 times higher than in 2007. That could equate to 25 significant bankruptcies per month.

We examined ratings from Moody’s and data from other sources to develop a short list of potential victims that ought to be familiar to most consumers. Many of these firms are in industries directly hit by the slowdown in consumer spending, such as retail, automotive, housing and entertainment.

But there are other common threads. Most of these firms have limited cash for a rainy day, and a lot of debt, with large interest payments due over the next year. In ordinary times, it might not be so hard to refinance loans, or get new ones, to help keep the cash flowing. But in an acute credit crunch it’s a different story, and at companies where sales are down and going lower, skittish lenders may refuse to grant any more credit. It’s a terrible time to be cash-poor.

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That’s why Moody’s assigns most of these firms its lowest rating for short-term liquidity. And all the firms on this list have long-term debt that Moody’s rates Caa or lower, which means the borrower is considered at least a “very high” credit risk.

Once a company defaults on its debt, or fails to make a payment, the next step is usually a Chapter 11 bankruptcy filing. Some firms continue to operate while in Chapter 11, retaining many of their employees. Those firms often shed debt, restructure, and emerge from bankruptcy as healthier companies.

But it takes fresh financing to do that, and with money scarce, more bankrupt firms than usual are likely to liquidate – like Circuit City. That’s why corporate failures are likely to be a major drag on the economy in 2009: In a liquidation, the entire workforce often gets axed, with little or no severance. That will only add to unemployment, which could hit 9 or even 10 percent by the end of the year.

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It’s possible that none of the firms on this list will liquidate, or even declare Chapter 11. Some may come up with unexpected revenue or creative financing that helps avert bankruptcy, while others could be purchased in whole or in part by creditors or other investors. But one way or another, the following 15 firms will probably look a lot different a year from now than they do today:

Rite Aid. (Ticker symbol: RAD; about 100,000 employees; 1-year stock-price decline: 92%). This drugstore chain tried to boost its performance by acquiring competitors Brooks and Eckerd in 2007. But there have been some nasty side effects, like a huge debt load that makes it the most leveraged drugstore chain in the U.S., according to Zacks Equity Research. That big retail investment came just as megadiscounter Wal-Mart was starting to sell prescription drugs, and consumers were starting to cut bank on spending. Management has twice lowered its outlook for 2009. Prognosis: Mounting losses, with no turnaround in sight.

Claire’s Stores. (Privately owned; about 18,000 employees.) Leon Black’s once-renowned private-equity firm, the Apollo Group, paid $3.1 billion for this trendy teen-focused accessory store in 2007, when buyout funds were bulging. But cash flow has been negative for much of the past year and analysts believe Claire’s is close to defaulting on its debt. A horrible retail outlook for 2009 offers no relief, suggesting Claire’s could follow Linens ‘n Things – another Apollo purchase – and declare Chapter 11, possibly shuttering all of its 3,000-plus stores.

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Chrysler. (Privately owned; about 55,000 employees). It’s never a good sign when management insists the company is not going out of business, which is what CEO Bob Nardelli has been doing lately. Of the three Detroit automakers, Chrysler is the most endangered, with a product portfolio that’s overreliant on gas-guzzling trucks and SUVs and almost totally devoid of compelling small cars. A recent deal with Fiat seems dubious, since the Italian automaker doesn’t have to pony up any money, and Chrysler desperately needs cash. The company is quickly burning through $4 billion in government bailout money, and with car sales down 40 percent from recent peaks, Chrysler may be the weakling that can’t cut it in tough times.

Dollar Thrifty Automotive Group. (DTG; about 7,000 employees; stock down 95%). This car-rental company is a small player compared to Enterprise, Hertz, and Avis Budget. It’s also more reliant on leisure travelers, and therefore more susceptible to a downturn as consumers cut spending. Dollar Thrifty is also closely tied to Chrysler, which supplies 80 percent of its fleet. Moody’s predicts that if Chrysler declares Chapter 11, Dollar Thrifty would suffer deeply as well.

Realogy Corp. (Privately owned; about 13,000 employees). It’s the biggest real-estate brokerage firm in the country, but that’s a bad thing when there are double-digit declines in both sales and prices, as there were in 2009. Realogy, which includes the Coldwell Banker, ERA, and Sotheby’s franchises, also carries a high debt load, dating to its purchase by the Apollo Group in 2007 – the very moment when the housing market was starting to invert from a soaring ride into a sickening nosedive. Realogy has been trying to refinance much of its debt, prompting lawsuits. One deal was denied by a judge in December, reducing the firm’s already tight wiggle room.

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Station Casinos. (Privately owned, about 14,000 employees). Las Vegas has already been creamed by a biblical real-estate bust, and now it may face the loss of its home-grown gambling joints, too. Station – which runs 15 casinos off the strip that cater to locals – recently failed to make a key interest payment, which is often one of the last steps before a Chapter 11 filing. For once, the house seems likely to lose.

Loehmann’s Capital Corp. (Privately owned; about 1,500 employees). This clothing chain has the right formula for lean times, offering women’s clothing at discount prices. But the consumer pullback is hitting just about every retailer, and Loehmann’s has a lot less cash to ride out a drought than competitors like Nordstrom Rack and TJ Maxx. If Loehmann’s doesn’t get additional financing in 2009 – a dicey proposition, given skyrocketing unemployment and plunging spending – the chain could run out of cash.

Sbarro. (Privately owned; about 5,500 employees). It’s not the pizza that’s the problem. Many of this chain’s 1,100 storefronts are in malls, which is a double whammy: Traffic is down, since consumers have put away their wallets. Sbarro can’t really boost revenue by adding a breakfast or late-night menu, like other chains have done. And competitors like Domino’s and Pizza Hut have less debt and stronger cash flow, which could intensify pressure on Sbarro as key debt payments come due in 2009.

Six Flags. (SIX; about 30,000 employees; stock down 84%). This theme-park operator has been losing money for several years, and selling off properties to try to pay down debt and get back into the black. But the ride may end prematurely. Moody’s expects cash flow to be negative in 2009, and if consumers aren’t spending during the peak summer season, that could imperil the company’s ability to pay debts coming due later this year and in 2010.

Blockbuster. (BBI; about 60,000 employees; stock down 57%). The video-rental chain has burned cash while trying to figure out how to maximize fees without alienating customers. Its operating income has started to improve just as consumers are cutting back, even on movies. Video stores in general are under pressure as they compete with cable and Internet operators offering the same titles. A key test of Blockbuster’s viability will come when two credit lines expire in August. One possible outcome, according to Valueline, is that investors take the company private and then go public again when market conditions are better.

Krispy Kreme. (KKD; about 4,000 employees; stock down 50%). The donuts might be good, but Krispy Kreme overestimated Americans’ appetite – and that’s saying something. This chain overexpanded during the donut heyday of the 1990s – taking on a lot of debt – and now requires high volumes to meet expenses and interest payments. The company has cut costs and closed underperforming stores, but still hasn’t earned an operating profit in three years. And now that consumers are cutting back on everything, such improvements may fail to offset top-line declines, leading Krispy Kreme to seek some kind of relief from lenders over the next year.

Landry’s Restaurants. (LNY; about 17,000 employees; stock down 66%). This restaurant chain, which operates Chart House, Rainforest Café, and other eateries, needs $400 million in new financing to finalize a buyout deal dating to last June. If lenders come through, the company should have enough cash to ride out the recession. But at least two banks have already balked, leading to downgrades of the company’s debt and the prospect of a cash-flow crunch.

Sirius Satellite Radio. (SIRI – parent company; about 1,000 employees; stock down 96%). The music rocks, but satellite radio has yet to be profitable, and huge contracts for performers like Howard Stern are looking unsustainable. Sirius is one of two satellite-radio services owned by parent company Sirius XM, which was formed when Sirius and XM merged last year. So far, the merger hasn’t generated the savings needed to make the company profitable, and Moody’s thinks there’s a “high likelihood” that Sirius will fail to repay or refinance its debt in 2009. One outcome could be a takeover, at distressed prices, by other firms active in the satellite business.

Trump Entertainment Resorts Holdings. (TRMP; about 9,500 employees; stock down 94%). The casino company made famous by The Donald has received several extensions on interest payments, while it tries to sell at least one of its Atlantic City properties and pay down a stack of debt. But with casino buyers scarce, competition circling, and gamblers nursing their losses from the recession, Trump Entertainment may face long odds of skirting bankruptcy.

BearingPoint. (BGPT; about 16,000 employees; stock down 21%). This Virginia-based consulting firm, spun out of KPMG in 2001, is struggling to solve its own operating problems. The firm has consistently lost money, revenue has been falling, and management stopped issuing earnings guidance in 2008. Stable government contracts generate about 30 percent of the firm’s business, but the firm may sell other divisions to help pay off debt. With a key interest payment due in April, management needs to hustle – or devise its own exit strategy.

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In the midst of a market meltdown and economic crisis, many Americans’ 401(k) retirement plans are looking a bit bedraggled. But some tender loving care from plan participants, employers and policy makers can help spruce up these accounts.

Market upheaval has underscored a litany of woes in 401(k) plans. Many people don’t save enough, make poor investment choices, pay high fees that eat into returns, and raid their retirement accounts to pay credit-card bills or fight foreclosure. Meanwhile, hard-hit employers are suspending 401(k) matching contributions.

And a market crash on the eve of retirement can crush the 401(k)s of even the most diligent savers. In the 12 months following the market’s peak in October 2007, more than $1 trillion worth of stock value was shaved off 401(k) and other defined-contribution plan accounts, according to Boston College’s Center for Retirement Research.

Those losses are particularly painful because the 401(k) has become the primary retirement savings vehicle for many Americans. Roughly 50 million people have 401(k)s, and these accounts now have about $2.5 trillion in assets, estimates the Employee Benefit Research Institute in Washington.

Lawmakers and employers already are looking at ways to improve the 401(k). At hearings in October, the House Education and Labor Committee heard a variety of proposals for overhauling these plans. And many companies have been automatically enrolling workers in 401(k)s and directing their contributions into broadly diversified funds. But you don’t have to wait for change to come.

You, your boss and Congress can start fixing up 401(k) plans today. Here’s how:

1. Save Till It Hurts…

Undersaving has always been a big issue in 401(k) plans, and the economic doldrums are only making matters worse. A recent survey commissioned by AARP, an advocacy group for older people, found that about 20% of workers age 45 or older had stopped contributing to a 401(k), IRA or other retirement accounts in the past year.

Think you can’t save any more? Ask your payroll manager to calculate what your paycheck would look like if you boosted your 401(k) contribution, suggests Christine Benz, director of personal finance at investment research firm Morningstar.

“The percentages might seem daunting, but if you look at it in dollar-and-cents terms, you might find it’s something you could easily implement,” says Ms. Benz.

2. … Even With No Match

Employers’ matching contributions are a big incentive for many workers to contribute to 401(k) plans. But major employers like General Motors and FedEx are suspending these contributions, and cuts are on the way at other companies. One out of 10 employers already has reduced or plans to reduce the match, according to a December survey by consulting firm Watson Wyatt Worldwide, up from 6% just two months earlier.

If your employer has suspended the match, you should boost your own contributions to make up for it. Together, the employee and employer should contribute at least 10% to 15% of the worker’s salary to build a healthy nest egg, retirement experts say.

The maximum amount most workers can contribute to a 401(k) this year is $16,500. Workers age 50 or older can contribute an additional $5,500.

3. Set It and Forget It

Sharp market swings can lead 401(k) savers to make some poor investment decisions, like fleeing stock funds simply because they’ve taken a dive. Investors who dump stocks at depressed levels lock in losses that could take a big bite out of their savings.

People who leave the asset-allocation decisions in the hands of a professional don’t have to worry about making emotional investment decisions in rocky markets. One solution: So-called target-date funds hold a broadly diversified blend of stocks, bonds and other investments and gradually shift toward a more conservative mix as investors near retirement.

But be aware that these funds can still fall hard and fast. The average target-date fund dropped 32% last year, while the Standard & Poor’s 500-stock index fell 38.5%. Even 2010 funds for investors about to hit retirement fell 25%.

4. Pay Attention to Fees

Hefty fees can put a lot of cracks in your nest egg. Yet many employers haven’t even tried to calculate the total costs of their plans. You should be able to see the total dollar amount you’re paying in plan fees so you can compare the 401(k) and other savings vehicles such as an IRA, Ms. Benz says.

Some of the simplest, cheapest investment options — indextracking funds — aren’t even offered in many plans. Rep. George Miller, a California Democrat who is chairman of the House Education and Labor Committee, wants to pass legislation encouraging all plans to offer at least one index fund.

5. Get More Workers Saving

Many companies don’t offer 401(k)s, and many workers who do have the opportunity to invest often simply don’t.

More and more employers are automatically enrolling workers. But many of these efforts focus only on new hires. They should also include existing employees. What’s more, many workers don’t have access to a 401(k). The costs and administrative burdens can be daunting for small businesses.

One solution might be for the government to make it easier for small employers to band together to offer workers 401(k)s, says Paul Stevens, president and CEO of the mutual-fund industry trade group the Investment Company Institute.

by Eleanor Laise

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