Guarantees of 401(k) plans called 'hollow'

[Omaha Steve]

Source: Bloomberg

BLOOMBERG NEWS

House Education and Labor Committee Chairman George Miller said Tuesday that 401(k) retirement plans do not provide sufficient retirement security for many Americans and must be revamped.

Miller, D-Calif., at a Washington hearing on the effectiveness of existing retirement savings plans, recommended better disclosure of 401(k) fees and more objective marketing of retirement products to investors.

Investors had $2.7 trillion in 401(k) accounts as of Sept. 30, according to the Washington-based Investment Company Institute, which represents mutual funds. The Congressional Budget Office, at an October hearing of the House Education and Labor Committee, estimated that workers had lost $2 trillion over a span of 15 months from declining stock markets.


House Education and Labor Committee Chairman George Miller

"For too many Americans, 401(k) plans have become little more than a high-stakes crap shoot," said Miller. "We are realizing that Wall Street's guarantees of predictable benefits and peace of mind throughout retirement was nothing more than a hollow promise."



Read more: http://www.omaha.com/index.php?u_page=1208&u_sid=10572333

[TwilightGardener]

1. I saw a very good Frontline episode from a couple years ago about

retirement plans and 401k's--very eye-opening. 401k's started off as a little-known corporate-executive tax "gimme" that Congress approved a ways back, NOT initially intended to be the SOLE retirement plan (aside from SS) for most ordinary Americans (who know very little about investing and managing portfolios).

[antigop]

2. Repeat after me... we need to bring back DEFINED BENEFIT PENSIONS n/t

[safeinOhio]

5. With protection against bankruptcy by employer.

[sarcasmo]

11. Makes me thing of GM the way you used the phrase.

Protection Against Bankruptcy by Employer. I fear for my Dad who did 35 years at numerous GM plants and now at 62 has to worry if he is going to get his Pension whacked. The good thing is he was smart enough to pay off his house before he retired.

[DemoTex]

17. Yeppers. My defined benefit pension was terminated on 3/31/2003.

Terminated by a GOP-appointed bankruptcy judge .. then my CEO left with a $10-million+ golden parachute.

[Swede]

15. These are also called annuiites,the worst investment ever.

Give them your money,let them make all the profit,they give you back your fixed pension. Brilliant move by the banks and insurance companies.

[antigop]

18. Defined benefit pension payments are paid out of defined benefit pension trust fund n/t

[Swede]

23. They take your payments,invest in oh say credit cards,and pay you 3/4 of your salary.

And your spouse gets 3/4 of your 3/4. When he or she dies,they keep the cash,your benefeciaries get squat. Sounds good to me.

[antigop]

24. please, do some reading on defined benefit plans. And ask an actuary what the most efficient way of

providing retirement benefits for a large population is.

HINT: It ain't 401(k)'s.

[Swede]

25. You do know that these defined benefit programs are administered by the insurance industry.

Those wonderful people filled with the milk of human kindness.

[antigop]

26. NOt necessarily-- please do some reading. And you didn't ask an actuary, did you? I'm done. BYE. nt

[Swede]

27. I work in the industry.

I'll ask myself. Nope,not a good idea.

[ccinamon]

3. Mr Miller...really want to help americans and their retirement?

How about passing a law forbidding companies from using retirement funds or defunding reitrement/health care when they make bad business decisions and the companies go into bankruptcy? If you can give millions away to executives who make bad decisions, than you can afford to fund retirement and health care for retirees.

[bertman]

4. What part of "no guarantee of return on investment" do people NOT understand?

It's a RISK to invest in anything. 401k's are no different and they tell you this in the paperwork and the prospectuses. Anyone who went into these thinking they are a guaranteed source of income did not read the paperwork.

If you look at the charts that come with your investment portfolio they usually show that investing in the stock market is a LONG TERM strategy and there are often BIG DIPS in stock value.

It's unimaginable to me that the government or any financial entity can GUARANTEE that things won't change in the future. Just the way life is.

[RaleighNCDUer]

7. What part of "no other choice" do you not understand?

When a company does not offer ANY other retirement than a 401k to their HS grad workers who don't know shit from investing, what other choice do they have? Half the people who have 401k can't ever READ the fucking prospectus with any real comprehension.

Let me guess - you want to privatize social security, too.

[joeglow3]

8. So, what is the alternative???

Pension plans? That is great, but where do you think that money is invested? You can call it whatever you want, but the risk is the same.

[antigop]

19. The risk is put on the company that sponsors the pension plan -- not the employee n/t

[bertman]

9. Other choices: savings, real property, rental property, bonds, gold, silver.

No, smartass, I do not want to privatize social security. My point is that investing in the stock market is HIGH RISK because of what happens when a "bubble" pops, or a recession or depression hits--which they do with amazing regularity.

I know lots of people who have no college degree who have bought their own homes, paid for them, bought other property and sold it and have a nice nest-egg for themselves that, coupled with their social security benefits, will allow them to live fairly comfortably.

If people cannot read a prospectus why the hell are they putting their hard-earned cash into something they don't understand?

[ozone_man]

12. The trouble with 401Ks

Usually, there is a matching of some kind by the employer, so there is a strong incentive to contribute to the matching level.

Unfortunately, there are not many choices other than stocks, bonds (which may start out being AAA, but may end up being junk by teh time the market bottoms), or the money market. So, in a declining market, the best you can usually do is stay in the money market until the bottom is reached, whenever that is. We may never get to the bottom. The market may be halted when the Dow gets below 3500 or 2000. No one really knows.

There is no provision to bet against the market, say by owning precious metals or even to bet that the market will go down. Instead, the unwitting public is led to believe that if they just stick it out, they will do better than other investments in the end. Meanwhile, the Wall Street insiders are selling out to these 401Kers.

So, it's a casino rigged to benefit Wall Street at the expense of Main Street. or a Ponzi scheme. Whichever analogy you prefer, it's an abomination.

[bertman]

13. Agree 100%, ozone_man. Not only is the casino rigged, but the entire process is rigged

to screw the working class. It's all about stock performance and not about how a corporation treats its employees, what it's attitude is toward protecting our environment, or even, is the corporation making products/producing services that benefit humankind instead of undermining humankind.

Stock performance too often is about the amount of profit that's generated for the stockholders and has nothing to do with HOW it's generated. That's why employees get laid off, benefits get slashed, jobs get outsourced. But stockholders make more money IN THE SHORT TERM and move on to the next HOT STOCK.

This whole stock market debacle could be good for us all if it helps to reorder the priorities of investors and corporations. But I doubt it will.

[antigop]

20. BINGO. And 401(k)'s don't have to have a money market fund to choose from n/t

[RaleighNCDUer]

14. Because their EMPLOYER calls it a 'retirement plan'.

And they are not educated enough to know it is not a pension.

The boss suggests it, and he IS the boss so he must know what he's talking about, and it looks good on paper, so they sign up. A retirement plan just makes sense, you know. And it is the ONLY retirement plan offered. What are you going to do? Put it in a savings account at 2.25%?

The vast majority of people who have 401k money are not "investing in the stock market". They are investing in their 'retirement plan'. The stock market is a strange, mysterious entity which has nothing to do with their lives. They get a paper and read, maybe, the front page, the LTTEs, sports section and comics, and put the financial section under the bird cage.

'Lots' of people CANNOT do any of what you say, other than a savings account and even that ain't easy when every cent you make goes out to paying bills. You are aware, aren't you, that 50% of the people in the country make less than $22k/yr. That's half the population earning 50% of the MEDIAN income. People down here don't have those choices. Invest in real property? When you can barely put food on the table, where do you come up with an extra 25 or 30 thousand dollars?

Lacking a real pension plan, what REAL choice do people have other than trusting their employer's advice, crossing their fingers, and going with the ONLY option offered?

Do you even know what it's like out here in the real world?

[antigop]

21. And usually you can't get the money out until you leave or turn 59 1/2 n/t

[antigop]

22. And the employee does not get to choose the funds that are in the plan, &they don't negotiate fees

So they are locked into a plan with a bunch of funds that they didn't choose (other than by virtue of choosing to work for a particular company) and they have to pay fees that they didn't negotiate.

[Swede]

16. Everyone of those bounce up and down,too. Savings accounts rarelly beat inflation.

All these folks with huge mortages on houses that are worth 1/2,was that a great investment?

[happygoluckytoyou]

6. GUARANTEE>--> That would be the Savings Account or BOND option... STOCKS is RISK... play...pay...OR

GUARANTEE>--> That would be the Savings Account or BOND option... STOCKS is RISK... play...pay...OR accept your 5% BOND payout or CD payout and LIVE WITH IT. Life is not a guarantee... can't be... it is just which market you put your money into....

GOLD GOES UP.... same as if $greenbacks$ went DOWN

INFLATION.... good if you owe.... bad if you dont

FIXED INCOME.... good when incomes are going down.... bad when they are going up

PROPERTY.... good when people are buying.... bad when the economy is in a HOLE

.........the solution is to OVER-SAVE for your RETIREMENT........ don't get risky or greedy.......
how else do you think you work for 50 years (until you are 68) and live off the land for 20 more (until you are 88).

IT ISNT SOME MYSTIC MAGICAL MONEY MACHINE... the Baby Boomers (myself included) need to understand the WEIGHT of our burden on the next generation... and need to HAVE PREPARED for that.

In some cultures, the elderly own the HOUSE.... and release the ownership in "payment" for food and care....
In some households, people raised children who will care for them in the later years....

SOME PEOPLE JUST SPENT WHATEVER THEY EARNED.... and now cant figure out why they dont have anything....
---------------at least we had good old G W BUSH finally give up on private Social Security.... wouldn't that suck even bigger

[sarcasmo]

10. Almost glad I am somewhat poor, would have an ulcer if I lost as much as some people I know.

[antigop]

28. The answer is to bring back defined benefit plans. Ask any actuary what the most efficient method

of providing retirement benefits for a large population is.
HINT: It ain't a 401(k).