Scream Munch
Don't let a bad 401(k) make you scream. The Scream by Edvard Munch. Source: Wikimedia Commons.

Vague answers to important questions. Companies sending the wrong paperwork to unsuspecting clients. Very poor options heralded as great deals.

You'd think these sorts of issues wouldn't happen in important matters like retirement planning. But you'd be wrong.

Indeed, horror stories of 401(k)s gone bad abound. From fixed-income, low-returning funds to reams of incorrect paperwork, would-be retirees' experiences have run the gamut. Here are a few to watch out for.

The road that shouldn't be taken
Motley Fool community member HalcyonFool's new retirement plan got off on the wrong foot right out of the gate. Barely three months into his new job, he learned that though he'd opted out of the company 401(k) plan because of its exorbitant fees, choosing a Roth IRA instead, he'd actually been automatically enrolled in the 401(k) -- and placed into a fixed-income fund with minimal returns!

Says HalcyonFool:

This policy did not appear in any of the HR materials we received as new hires, and when I asked our local HR representative she was as surprised as I; after more than a little web research, I found that this is a fairly new policy passed down from the parent company without much effort made to let us lowly employees know.

The moral of the story? Don't ever assume your opt-out trumps automatic opt-in. Check the status of your 401(k) enrollment with your human resources department annually -- even if you think you've taken care of it.

A tale of incorrect paperwork
Community member Rph34, on the other hand, had no problem with her 401(k) setup -- at least at first. When it came to rolling it over from her old employer to her new one, however, the devil was in the details, and she quickly found herself up against one provider mistake after another:

In summary, ING has repeatedly sent me the wrong paperwork, claimed they never received the paperwork, said the letter of acceptance was not on Vanguard letterhead, then said again they know nothing about it even when I had two letters saying the paperwork was not in good order. I ask to speak to the people who signed the correspondence and was denied. Then I started all over again and they sent the wrong paperwork again.

After several telephone calls and face-to-face meetings, Rph34 was finally able to complete her rollover. But what is often touted as an easy process was caught up in the weeds for weeks.

The moral of the story? Even the simplest tasks can become enmeshed in red tape -- so be prepared to be persistent.

Who's on first?
As the stories above readily display, mistakes abound throughout the 401(k) process. But there are mistakes, and then there's plain old incompetence.

Community member LudditeAndroid faced the latter when his employer purchased a retirement plan from a supposedly trusted source. After the company paid $200 per employee to set up the retirement program, the wheels fell off the bus:

Then we find out that every one of the mutual fund offerings have ridiculously high fees for what they are: an already underperforming S&P index with fees of almost 1%, a clone of [a developed non-US markets ETF] for over 3%, and lots of funds with the word "conservative" and synonyms thereof in the name of the fund, but the fund itself was invested in a small handful of volatile "hot" stocks in the same sector.

The plan, and its holdings, only went downhill from there. Employees had a difficult time discerning what was really in the plan because of murky account statements and a user-unfriendly website. The employer faced quarter after quarter of diminishing returns. And then the bottom fell out:

After a couple years of high fees and bad performance, the new owner finally decides he doesn't like how his funds are underperforming, and starts researching better firms to transfer our accounts to. That's when we find out something else interesting: they weren't actually mutual funds at all.

Annuities. We were buying annuities with extremely high surrender fees this entire time.

The moral of this sordid tale? LudditeAndroid sums it up: Your retirement-plan representative's likeability and friendliness doesn't preclude you from financial danger.

The Foolish bottom line
Each of these 401(k) tales of woe boils down to one common lesson: No matter what your situation, no matter what your plan is or how long you've been with it, the only person at the end of the day who can exert control over its holdings and use is you. Despite their best efforts, your human-resources department, business owner or fund representative can't take the time to get down in the weeds with you to discern what's right and what's askance in your retirement plan. You're on your own.

This story was originally written by Hope Nelson and published on Dec. 17, 2008. It has been updated by Dan Caplinger, who doesn't own shares of the stocks mentioned in the article.

The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.