The 411 on 401(k) plans.

Unlike Social Security, no one is "entitled" to a pension. Yet about 70% of public and private sector employers sponsor these retirement vehicles for their workers. Today, private pension plans pay annual benefits of nearly $141 billion - and account for 17% of all income for people age 55 and older. No matter what your age, then, these figures beg the question: "Do you have a grip on where your pension dollars are invested?"

Most folks earn their pensions in one of two ways: through defined benefit or defined contribution plans. The former provides a set annual benefit, paid entirely by the employer, based on salary and years of service. Defined contribution plans, such as 401(k) and profit-sharing programs, require employees to earmark a percentage of their wages to go toward the plan.

Given an aging U.S. work force and the high costs associated with employer-funded pension plans, more companies are turning to defined contribution programs. To date, says the Labor Department's Pension and Welfare Benefits Administration, over 100,000 such pension plans cover 19 million people.

Many people, however, are intimidated by the notion of tending their own pension investments, and thus play a passive role in how their funds are handled. That could soon change. New provisions under the Employee Retirement Income Security Act (ERISA) give employees greater choice and flexibility in pension plans in which they direct their own investment decisions.

Under the new rules, participants must be able to: * choose from at least three investment alternatives, each of which has different return characteristics. * diversify investments to minimize risk of large losses. * switch investments at least once every three months. * obtain sufficient information from their employer to make informed investment decisions.

The new ERISA rule, effective Jan. 1, 1994, isn't mandatory. But pension plan sponsors, trustees and managers who do comply can't be held liable for participants' bad investment decisions. However, employees may be able to sue their companies for poor performance of investments if the plan fails to meet any of the above requirements.

By easing the burden placed on fund managers, Labor Department officials anticipate that by the end of 2000, the number of 401(k) plans will climb to at least 165,000, compared with 100,000 today. The bottom line: Whether you already contribute to or intend to participate in your company's 401(k) program, you'd better get the latest dibs on your retirement funds.

"Workers will have more say in how their pension money is handled" says Cindy Hounsell, staff attorney with the Pension Rights Center in Washington, D.C. "But it also means that they'll have to become more informed about the various types of investments available."

Sizing Up Your Options

The first step to winning the pension game is to make sure you're in it. The number of employees eligible for 401(k) plans, for instance, is up from 7 million in 1983 to more than 40 million today. Yet, surveys show that fewer than half of those workers actually participate.

"Employees who aren't contributing to salary reduction plans should ask themselves, 'Can I afford not to?'" says Charles Ross, an Atlanta-based certified financial planner.

The answer is, "probably not," given the general rule that most people should sock away between 5% and 10% of their incomes annually for a comfortable retirement. But in these days of job-hopping and layoffs, most departing employees raid their pensions and blow the entire wad, rather than saving it. Considering the opportunities for your pension's tax-deferred growth, such a move is unwise. The maximum annual contribution for a 401(k) plan is $8,728 (this limit rises each year with inflation).

Even those who do participate often fail to invest their pension funds for maximum gains, says Pierre Dunagan, an account executive with the brokerage firm of Dean Witter Reynolds Inc., in Matteson, Ill. As proof, he points to the millions of 401(k) participants who are heavily invested in guaranteed investment contacts (GICs). GICs, also known as capital preservation or "fixed-income" accounts, are instruments issued by an insurance company that guarantee a set interest rate,similar to a bank certificate of deposit.

So before you choose any investment option, take stock of all of your retirement savings, suggests Roberta Berger, co-owner of Capital Control Concepts, a financial planning and investment advisory firm in Englewood Cliffs, N.J. Think of your pension plan as the place to round out and enhance your retirement portfolio.

Most companies offering 401(k) plans allow employees to invest pretax dollars into bonds, GICs, stocks, mutual funds or insurance certificates. The company normally matches 50 cents for every dollar, or up to 6% of your earnings, and the money accumulates tax-free until withdrawal, usually upon retirement.

Compared with other investments, equities (i.e., stocks), offer the best potential for long-term growth. In fact., stocks making up the Standard and Poor's (S&P) 500 have gained an average of 10% since 1926.

Large corporations, such as IBM, Time Warner and Xerox, also offer their own stock as an option. But loading up on shares of any single company is risky stuff: Just ask the IBM employees who watched the value of their pensions shrink as the company's shares nosedived last January. Treat your company's stock as you would any other, by checking out the prospectus as well as quarter-to-quarter performance.

As noted above, GICs, too, are a popular option, But remember,they are only as safe as the companies that issue them. To play it safe, check with your plan administrator to see if your GIC is backed by a state guaranty plan.

But growing the funds to last you a lifetime takes careful, deliberate planning. Learn to weigh your goals and tolerance for risks against the financial options your company offers.

For additional information on keeping abreast of your pension, the Washington, D.C.-based Pension Rights Center, a consumer advocacy group, offers several publications. Check out Protecting Your Pension Money ($8), a handbook that explains how you can tell if those handling your pension funds are following federal rules; and Can You Count On Getting A Pension? ($3), which gives advice on new investing rules for both company and union pension plans. To obtain either publication, contact the Center at 918 16th St. NW, Suite 704, Washington, DC 20006.

Another resource, available from the federal government, is Your Pension: Things You Should Know About Your Pension Plan. To get your copy ($3), write to the Department of Labor's Pension and Welfare Bonefits Department, 200 Constitution Ave., Rm. N5666, Washington, D.C. 20210.

Remember, a well-tended pension can help ensure your comfortable retirement. By mixing and matching the right investments, you can tip the scale in your favor.

INVESTMENT

STOCK TIP

One company to put on your list of stocks is General Telephone & Electronics Corp. (GTE). Revving up to be the world leader in telecommunications, GTE has shown impressive earnings growth - around 9%, twice the industry average. The rapid explosion in cellular telephones has made GTE the second-largest service provider in that market. It has raised dividends consistently in the last 39 years and should continue to grow 7% annually.

GOING IT ALONE

You don't have to belong to an investment club to be a member of the National Association of Investors Corp, The nonprofit organization, based in Royal Oak, Mich., governs some 7,600 investment clubs, with a total of 140,000 members,

A great and fairly inexpensive way to build up your personal portfolio is to take advantage of the group's Low Cost investment Plan. This program allows you to buy dozens of companies for a one-time setup and handling fee of only $5 per share. Individual membership is $32. For more information, write to NAIC, 1515 East 11 Mile Road, Royal Oak, MI. 48067.

MUTUAL FUND UPDATE

Now that you've been bombarded with various mutual fund reports, you may welcome a refresher course on the basics.

Balanced Fund: a fund with a mixed portfolio of stocks and bonds, offering safety of principal, regular income and modest growth.

Capital Appreciation Fund: a fund that invests in companies having significant potential for capital growth.

Growth Fund: a mutual fund that seeks long-term capital appreciation.

Growth & Income Fund: a fund with a dual purpose. One is to invest in companies that offer long-term capital growth. The other is to invest in companies that also pay dividends.

Fixed-Income Fund: a fund that pays a fixed rate of return. it usually holds corporate, municipal and government bonds.

Socially Responsible Fund: a fund that avoids companies that invest in South Africa, manufacture arms or do harm to the environment.

Global Fund: a fund that invests in foreign-based companies.

International Fund: a fund that invests in companies overseas, including U.S. firms with international factions.

THE ABCs

OF MONEY

Anyone interested in teaching money management to kids should check out the National Center for Financial Education. The San Diego-based nonprofit organization's Money-Book Store offers a wide variety of books, games and course materials.

Money Manager for Children is a series of books designed specifically to teach young children the concepts of money accumulation and management. This three-book set, which costs $10, is ideal for young people in grades 3 through 6. It includes a Personal Money Book, which teaches skills and the value of money; a Family Money Book, which helps children understand about household and family expenses; and a Money Manager Book, which guides children along in day-to-day planning.

Another learning tool, the Reward Game, is a model of the nation's economy. Players buy, sell and trade assets to learn financial independence. The game sells for $35, plus $5 postage and insurance.

To order the books or for more information, write: NCFE, Money-Book Store, P.O. Box 34070, San Diego, CA 92163.

BUDGET BOOSTER

Are you concerned about stretching your dollars in a tight economy, and looking for a short and simple guide to starting and maintaining a personal budget? The Guide to Personal Budgeting: How to Stretch Your Dollars Through Wise Money Management (Globe Pequot Press, Old Saybrook, Conn.; $8.95) will provide step-by-step methods for tracking your income and expenses.

READING IS FUNDAMENTAL

Whether you are a seasoned or novice investor, the biggest mistake you can make is to fail to take advantage of annual reports. Annual reports are often the most comprehensive review an individual investor can find on a company. You can get a solid overview of a company's financial health by using the annual report together with resources such as Standard & Poor's Stock Reports and Value Line Investment Survey. You'll learn about the company's current standing as well as its future prospects.

Granted, some reports are more candid than others when it comes to dealing with the critical problems and issues facing the company and its industry. By familiarizing yourself with a specific company, you will be far better able to judge its credibility.

Nothing stays the same. This applies to annual reports. Never assume that there is nothing new in this year's annual report.