The Pension Protection Act of 2006 encouraged many companies to automatically enroll their employees in their 401(k) plans. By many accounts, this was a positive development, since the default choice, that requiring no action on the part of an individual, often proves to be the most popular. On the other hand, the timing of this law could have been better in retrospect since its enactment was shortly followed by the biggest stock market correction in decades.

Nonetheless, it's a net win for employees who, on average, are now more likely to save for retirement through their 401(k) plans than previously. However, even if you or a loved one have been automatically enrolled in your plan, that's just step one. Other considerations for those who have been "opted-in" to their workplace retirement plans include:

The contribution level: is it high enough? Often it is set at a relatively low rate.


Are the investment selections appropriate? If you're particularly risk-averse and your default investment selection is a target date fund, you may need to scale back your equity allocation. Another possibility is that you've been placed in guaranteed income or stable value funds yet are young enough to benefit from and handle the corresponding risk of a stock-based investment selection.

Even if you've been fortunate enough to be participating without any previous action on your part, now is the time to make sure the detailed selections made on your behalf are truly appropriate for you.

You don't need me to tell you that times are tough. After all, between the nightly news, the remaining newspapers in circulation, and the myriad of web sites, it would be hard to miss the reality of the ever-increasing unemployment rate, the higher frequency of foreclosures, and the generally lower level of consumer confidence.

All this news might make you want to cut back on spending to ensure yourself of a greater emergency fund should you personally experience a financial setback. But be careful of cutting back on your 401(k) contributions. If you have one, a 401(k) plan is one of the most important long-term saving vehicles available. Not only does your contribution save you taxes the very day you save, but you can also benefit from decades of tax-deferred growth.

Should your employer also offer you a match on your contribution, your failure to fully capitalize means you are forgoing free money. No matter the circumstances, that's never the right move.

Broadly speaking, there are two kinds of mutual funds: actively managed funds and index funds. Actively managed funds are run by investors managers who make frequent buy and sell decisions with the specific intent of beating a certain market average. Index funds, on the other hand, are significantly more stable in terms of what they own: the index that they track. As such, index funds will always perform microscopically poorer than the relevant index, since they subtract some operating expenses. On the other hand, actively managed funds may beat or under-perform the return garnered by the benchmark index, in many cases by a significant margin. Over the long-term, very few professional managers consistently beat their index. Yet some still do. How do you prefer to invest?

With the unemployment rate rising throughout the country and, in some states exceeding 10%, many people are finding the need to dig into savings to pay monthly bills. Ideally, you'd have an emergency fund of three to six months of living expenses just for this purpose. But, even if you did have that kind of savings at the outset of the recession, you may now have burned through it. While it's never something I recommend, you may now find yourself starting at the possibility of taking money from your retirement accounts to pay for non-retirement expenses.

If you're unemployed, you can't take a 401(k) loan. But if your financial stresses have been caused by your spouse losing his/her job, then you may still have that option. In certain circumstances, you may also be able to tap your Roth IRA tax-free. Tapping any retirement account is not without peril. After all, you forever forgo the earnings and tax advantages of the money you spend today. As such, your first choice is to lower your expenses as far as possible. Nonetheless, if you must tap your accounts, be sure to do so minimally and intelligently.