Not all 401(k)s are created equal

For many workers, the 401(k) is the only retirement plan they have. And that makes it all the more important that their 401(k) is a good one.

The differences between a good and mediocre plan -- which might seem minor but add up over a 40-year career -- can determine whether you'll enjoy comfy golden years or be forced to work longer to build an adequate nest egg.

"They can differ dramatically," said Rockville, Md., financial planner Christopher Brown. "There is no consistency."

The best plans have low fees, quality investment options and healthy employer matches. They also successfully encourage workers to contribute heavily. But even if your plan is lacking in these areas, the tax benefits and easy savings through payroll deductions often make the 401(k) worthwhile.

Most people assume -- wrongly -- that the best 401(k)s are those that give workers access to funds with the highest returns, said Mike Alfred, chief executive of BrightScope, which rates about 55,000 plans on its site, brightscope.com.

"For the most part, that's irrelevant in 40 years of saving," because funds might do well for several years and then revert over the long haul to the market average, Alfred said.

Take Legg Mason fund manager Bill Miller, who beat the S&P 500 index 15 years in a row and then struggled to keep up with the benchmark, Alfred said. "Even great investors have periods of driving back to the mean," he said.

More important than performance is how much savings a worker accumulates over a career, Alfred said.

So when BrightScope rates a plan, it looks at the dollars going into the plan annually for the average employee, including worker contributions and employer match.

Even plans with the same match might not rate the same, Alfred said. One employer might require that employees work a year before they are entitled to keep the match. But if the company has high turnover, its workers might never stay on the job long enough to get that money, he says.

Fees also are a key factor because the more you pay, the less you keep. "Most (workers) don't know what they are paying and a large percentage don't think they are paying anything," Alfred said.

You can check your plan's website or the human resources department to learn about fees. BrightScope's site also posts fees for many individual plans.

You pay an annual fee for the funds you invest in, and some plans also assess a recordkeeping fee, said Christopher Jones, chief investment officer for Financial Engines.

Annual fees in large plans average 0.10 percent to 0.60 percent a year, while the average fee at small plans can be up to 1.5 percent, Jones said. Much higher, and you're likely overpaying.

Investment options also matter. That not only means better fund choices but more variety in the types of stock, bond and other funds offered, Brown said.

Many 401(k)s offer several U.S. large-cap stock funds that alone don't provide the needed diversification, Brown said. A good 401(k) also offers funds that give workers exposure to small cap stocks, commodities, real estate, fixed income and international markets, he said.

Offering more funds isn't necessarily better, either. Some employers overwhelm workers with more than 100 choices.

But even weak 401(k)s are worth considering.

"I haven't seen one that's so horrible that I would say, 'Better not invest in it,' " Brown said.

For one, you get good tax breaks. Money goes into the plan before you pay taxes on it and remains tax-deferred until you take withdrawals. Also, you can sock away a lot of money in a 401(k) -- up to $16,500 a year for those under 50, and $22,000 for those 50 or older. The maximum annual contribution to an individual retirement account is $5,000, or $6,000 if you're 50 and up.

Alfred said if you only invest a couple thousand dollars a year, you might be better off with an IRA if your 401(k) plan has exorbitant fees and no match.

Or you can lobby your human resources department to improve the plan. Companies compete for talent, and offering good benefits is one way to stand out, Jones said.