This is a story about how people react when thrown into a situation where they have to make retirement decisions. Investing for a comfortable retirement is a race, a race against time. Everyone has been signed up but only a few will make it past the finish line. The situation I describe might be one you find yourself in so I am passing on a few Foolish tips.

Many workplaces have switched from a defined-benefit plan to a defined-contribution program. This happened last year at a hospital where I used to work. My guess is the word defined was kept in by the consultants to smooth the transition, from one defined thing to another. These consultants could be showing up at your company's door next. But as a Fool, it will be to your advantage.

The original plan was a no-brainer. You put your twenty or thirty years in. When you retired, you got a reasonable percentage of your salary along with the gold watch. Under the new plan, the hospital places 2%-4% of your salary into a treasury-bill fund and matches your 403(b) contributions 1:2 up to 3%. The 403(b) plan had been around for years but few had joined it. Now every employee found themselves having to choose from some 100 investments (mostly mutual funds) if they wanted to stay even with the defined-benefit plan.

With any change, there are winners and losers. For the hospital, the 3% translated to six million dollars. The head of human resources, when asked, said that the hospital would come out ahead if less than 100% of the staff enrolled. The 3% was designed to be equal to what had been given to everyone under the old pension plan. With an estimated 1/3 of the staff joining, the guesstimate was that the hospital would only have to contribute $3 million, leaving more than enough to pay the consultants who thought up the change. For those doing the math, salary level was proportional to percentage participating. In addition, the hospital had placed all the investment risk on the employees. They no longer had to guarantee a pot of money when everyone turned 65. The hospital had fulfilled their obligation at the end of the pay period.

The good news was that you could aim for better returns than t-bills and any realized gains would be tax sheltered. In addition, you could easily take it with you when you left, a boon for a job hopper such as myself. For those already contributing the maximum of 20% or $9500 (401(k)s have different limits), you would get a pay increase as you had to reduce your contributions to make room under the IRS ceiling for the hospital's share. Still, this affected only 50 people out of 3500, most of whom were senior administrators and doctors.

It got interesting when enrollment began. In all fairness to the hospital, they tried to do a good job of educating the staff; bringing in the mutual fund company to give basic investment presentations. I felt sorry for the poor salesperson who had to give the 2 a.m. speech to the night shift.

People's reactions to this new opportunity were varied. At lot of people refused to pay attention when management asked them to participate. After a round of layoffs, the administration had lost some credibility, but principle should not always be placed in front of principal.

Still, I never heard such a litany of excuses about why people could not participate. One person said that contributing 6% to get 3% was asking too much. He couldn't see how anyone could afford it. Of course, he was senior management, making over twice as much as the average employee. Others begged off saying they had credit card debit. Foolishly, I tried to explain that a 78% gain without risk (their dollar + 50 cents from the hospital and 28 cents from Uncle Sam) was a better return than even paying off a credit card. They would then come up with another excuse, such as investing was too risky (and they play the lottery) or that investing was too complex (from someone who supports brain surgery). They were content with their half shares in the treasury-bill fund. My advice to Fools is to sadly let them go their own way. If they don't want to race, dragging them to the track won't help.

So only 3 or 4 of the original 10 racers even made it to the starting lap. Surprisingly, many people tuned out the mutual fund company's discussion of the stock market, risk and inflation and put all their investments into a money-market fund. In retrospect, I should have seen it coming. I had helped prepare a budget analysis where 1985 dollars were lumped together with 1995 dollars. When I asked about why this was being done, I just got blank looks. The mutual fund company wanted their money too, so they emphasized that their money fund never went down below a dollar a share. Again, I was Foolish enough to try explaining why this was not a good idea but when I talked about inflation, people would fondly remember the early 80s. Back then everyone got 10-12% raises and now they were only getting 5%. Fools have to let these drivers race their own way. They're the ones doing 55, in the left lane, very wisely.

So, who was left in this race? About two cars out of the original 10. And one of those remaining had a problem, the driver kept looking in the review view mirror. Yes, a lot of those who invested in stock funds put their money into the Flagship fund. The fund had a great track record when it was smaller and run by a different manager. Needless to say, it suddenly spun out, no longer beating the market. Fools could only sympathize and resist pointing out the little notice that past performance does not guarantee future results. You should nudge these racers into spreading out their money among smaller growth-stock funds. And if you are lucky enough to have an index fund available, encourage them to put their money there.

So only one little race car is still in the race. That translated into a few employees actively working towards building a comfortable retirement fund. Those whom I talked to knew enough to not be too thrilled with mutual funds. While this may not seem like Foolish advice, it is better to go with a mutual fund than do nothing. We took the plunge and bought smaller funds that invested in growth companies. The 78% instant increase made up for the 75% chance of under-performing the S&P.

Now, I saved an investment action that might be a secret for you; it is something that mutual fund companies don't want you to know. I learned this at another company. The president's buddy ran the retirement fund and you could only choose between 10 mutual funds with a 8.25% load and a no-load money-market account. The action is known as a trustee to trustee transfer. It allows you to move your mutual fund company money into a self-directed IRA account at a brokerage firm. I would put my money in the money market fund and transfer it out as often as possible. Each fund has limits on the number of times a year so check on the rules before doing this. Your broker can supply you with the paperwork, usually one page per fund.

So, at this stage of the race I still have money in two mutual funds that have out-performed the S&P. However, I am trying to justify to myself that I should transfer them out, too. Maybe that is why I writing this fribble. I am still racing along, farther than most of my co-workers. My car is painted Motley and none of the big brokerage houses will sponsor it. I don't mind looking Foolish because winning that comfortable retirement will be determined by how fast my car runs and not who approves of it.

Submitted respectfully, Mark Brady

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