How to Tell if You Have a Lousy 401(k) Plan

Some 401(k) plans offer better benefits to plan participants than others.

Some 401(k) plans offer better benefits to plan participants than others.

Long vesting schedule. Employees who leave a job before they are vested in the 401(k) plan could forfeit some or all of their employer's contributions. Only 44 percent of 401(k) plans offer immediate vesting, which means you will get to keep all of your employer's contributions whenever you leave the company. Some 401(k)s have cliff vesting schedules in which you don't get to keep any of your employer's 401(k) contributions until you have been employed by the company for a specifc number of years. "If you are likely to change jobs a lot because of the nature of your career, and the company has a generous match but that is subject to a three- or five-year cliff vesting schedule, it's not likely to benefit you," says David Loeper, author of "Stop the Retirement Rip-off: How to Avoid Hidden Fees and Keep More of Your Money." Other employers have graded vesting schedules in which you get to keep a gradually increasing proportion of your employer's contributions based on your years of service – typically getting to keep the entire 401(k) match only after five or six years of service. "The employer doesn't want to invest in the employee and then have the employee up and take off," says Christopher Carosa, a retirement plan consultant and chief contributing editor of "From the employee's standpoint, it's better to have immediate vesting."

Poor investment choices. The average Vanguard 401(k) plan offered 27 investment options in 2012, up from 16 in 2003, many of which were recently added target-date funds. "If you have more than 20 options it's probably not going to be a user-friendly plan," Carosa says. "It's going to put too much of the burden of deciding what to invest in on the employee." However, almost half of Vanguard 401(k) plans now offer at least four low-cost index funds that invest in U.S. equities, international equities, bonds and cash, up from a quarter in 2004. "The index core is going to have the lowest cost typically, and costs have been demonstrated to be very important in terms of predicting future outcomes," Young says.

[Read: 10 Secrets of Successful Retirement Savers.]

High fees. Most 401(k) plans charge a variety of fees ranging from record-keeping costs to expense ratios on each investment option. You want to make sure that the expenses aren't excessively high. "An easy to remember rule of thumb is to look and see who is selling the fund to the plan. If the fund is being sold by a broker or an insurance company that is working in a non-fiduciary capacity there is a good chance that you will have these excess fees," Carosa says. "You want to make sure that none of the options in the plan have 12b-1 fees or revenue sharing."

401(k) plans are now required to give all investors information explaining the fees associated with each investment option in the plan, due to new U.S. Department of Labor rules. Make sure you look at these quarterly and annual 401(k) statements, and keep costs in mind when making investment decisions. "The fee is 100 percent certain; the return is not guaranteed," Loeper says. He recommends aiming to pay no more than 75 basis points for most investments, and less than 20 basis points for index funds. "If you are paying more than three-quarters of a point," he says, "somebody is making excess profits or is gambling with your money."