Even though employees are a year closer to retirement than in 2000, few are closer to it financially.

        In fact, the average balance of a 401(k) retirement plan declined in 2000 by about $5,000, or 10 percent.

        But things might not be as bad as they appear: Workers are continuing to make pretax contributions, and they are continuing to accumulate shares — more for their money, in fact.

        And most are still ahead of where they were several years ago, thanks to those years of above-average returns and the accumulated tax savings.

        Now, workers should focus on fixing their 401(k) plan so that they're protected against future such losses and positioned for a comeback.

        Financial adviser Bruce Berno, of Berno Financial Management in Anderson Township, says a carefully crafted and well-balanced 401(k) is the surest way to get to retirement goals. He offers workers this advice:
       

Step 1

        Know your plan and your goals.

        Before you know if your 401(k) will get you to your destination, you need to know where you want to go. Early retirement? Retire a millionaire? Retire with the same income?

        “Remember, you are investing for the future, not the past,” Mr. Berno said.

        You also need to know how you can use your 401(k) to get there. How much of your salary can you contribute? How much is your employer matching? What mutual funds do you have available to invest in? How are your investment choices performing compared to the market or comparable funds' averages?

        Check with your human resources department even if you think you know the answers. Your plan could have changed since you last looked. It could have increased matching or funding limits, for example. Fund choices and performances also change.
       

Step 2

        Boost your contribution.

        If you are not getting your full employer's contribution, you are saying “no thanks” and leaving money on the table.

        According to Hewitt Associates, an Illinois benefits consulting firm, 97 percent of employers provide some form of match or contribution to employees' 401(k) plans. In a Hewitt study of nearly 150,000 employees, more than half (59 percent) of employees eligible to receive an employer match did not contribute up to the maximum match threshold.

        Hewitt reports that the most common match is half of your 6 percent contribution. It's like getting a 3 percent deferred bonus every year.

        But if you're only contributing 4 percent, then you're only getting that extra 2 percent of your salary. So at least make sure you are contributing enough to get the maximum match.

        Even if you're already over that limit, consider boosting your contribution to the maximum amount allowed, most commonly 15 percent of your salary. Your paycheck won't be reduced by your full contribution because less income tax is withheld.

        Also consider that the recent tax cut will leave more in your paycheck. You can make your increased contribution invisible by offsetting it against the tax cut.

        Remember that with lower prices, you'll be getting more shares. And more shares means more opportunity for appreciation later.
       

Step 3

        Examine your allocation.

        You chose those funds you're investing in for a reason. Are those reasons still valid? More important, are you properly diversified?

        “Investors should have an asset allocation of a stock and bond mixture — and stick with it,” Mr. Berno said.

        That asset mixture can be different for everyone, however. Younger investors with a longer time horizon typically want more aggressive stocks; older investors wanting to be less risky typically want more bonds.

        So first figure what you want. Either sit down with a professional financial adviser or get some help from a financial Web site (such as Fidelity.com, Vanguard.com, retire.53.com, or Morningstar.com) to determine what asset allocation is right for you.

        Next, look at the mix of funds already in your portfolio. How much of them is growth versus value? Large versus small or midsized companies? Stocks versus bonds?

        In examining what you have, don't rely on your mutual fund names or general asset classes, such as growth or international. Instead, use a research program or database (such as Morningstar.com) to determine more exactly what you want to hold and what you already have.

        If the two don't match up, move to step 4. Otherwise, go to step 5.
       

Step 4

        Reallocate.

        Don't be afraid to move your money around — but make sure it stays spread around. Don't just try to catch the next wave.

        “Stay diversified,” Mr. Berno said. “You should have been diversified going in there.”

        You can sell one mutual fund for another, or you can leave existing balances while just moving where new contributions go. What to do depends on the size of your 401(k) and the degree you want to rebalance: In a large, unbalanced plan, simply shifting new contributions won't get the job done.

        Which funds you move into depends on the type of plan you have. Some could offer nine investment choices while others might offer 109. Some are virtually unlimited.

        Mr. Berno recommends using a fund database to choose among funds in the same class and style. If you're trying to pick among 10 large-cap growth funds, for example, pick one with the longest track record of solid returns — not just the one that did the best last year.

        Investors “should not try to predict what's going to do best over the next three to six months,” Mr. Berno said. “A balanced portfolio should do that for them.”

Step 5

        Leave it alone — except periodic checkups.

        Once you know your goals, know how you can get there and are comfortable you are following your game plan, don't tweak it. Too many tweaks and you didn't set out your allocation correctly in the first place.

        At the same time, if your contributions are virtually invisible to you, don't forget you have a 401(k).

        “Do a monthly or quarterly check, with a more detailed annual review,” Mr. Berno said. “But don't watch it daily.”

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