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The New Retirement Rulebook

Kelli B. Send, senior vice president for Francis Investment Counsel -- which offers investment advisory services to plan sponsors as well as education and individualized advice services to plan participants -- says many 401(k) plans do not "offer the kind of portfolio or the kind of investment options that they really should today. " When they do, international exposure is usually too Eurocentric.

"What we typically see is an average in the industry of 10-12 funds and maybe one international," she says. "Well, we know what has happened to the traditional international option. It has gotten hammered in 2011 because it is so focused on Europe."

Send says that 401(k) menus, as they have been pared down for simplicity's sake, need to be rethought and include alternatives, hard assets, commodities, emerging-market equities and emerging-market fixed income.

"You not only have to add them to the plans, you have to educate the employees on how to use them," she says. "The standard asset allocation models out there today still do not include those types of choices."

The average 401(k) investor's exposure to international funds is just 8% of assets, according to a study conducted by Vanguard. According to the Callan DC Index, retirement plans had less than 0.5% of plan assets invested in emerging-market equity funds.

In making sense, and returns, from the current investing environment, participants need options and the wherewithal to use them.

"So much in behavioral finance is about the inertia out there," Send says. "Once people check mixes they tend to stick to them. There is a fine line between long-term investing and neglect. What happens is people pick a mix when they are 30. Now they are 52 and they are finally going, 'Oh I'd better make some changes.' It's crazy that with the demise of pensions people just do not know what to do and the industry really hasn't figured out a way to really help people drive change. Even when you offer the brochures and the newsletters full of advice , people don't change their mix."

"The problem is twofold," she adds. "The employer really has to offer new-world thinking with their portfolio choices, but then the participant has to be given help to get them implemented."

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