The failure of our 401(k)s

[Liberal_in_LA]

http://www.latimes.com/news/opinion/sunday/la-oe-rutten10-2009jan10,1,147265.column

The failure of our 401(k)s

The accounts were never meant to entirely fund retirements, and the financial crisis has hit many hard.

Tim Rutten
January 10, 2009

As a consequence, there's been little discussion of the way in which this economic implosion has exposed the utter failure of the now-ubiquitous 401(k) retirement accounts. In fact, the entire 401(k) system looks increasingly like the sort of bait-and-switch con relished by the Bernie Madoff's of the world.

As Robyn Credico, a leading consultant on pensions, told the Wall Street Journal this week, "This is the biggest test that the 401(k) plan has seen to date, and it has failed."

Here's the problem: In 1978, when Congress amended the Internal Revenue Code to include Section 401(k), it envisioned the provision mainly as a way for workers to supplement their companies' traditional defined-benefit pension plans and Social Security. (Secondarily, it also was a nifty hideaway where highly paid executives could shelter income from taxes.)

Nobody at the time envisioned the 401(k) as something on which people would rely for their retirement.

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The problem is that, since the markets' peak in October 2007, our 401(k)s have lost a collective $1 trillion in value. That's fully a third of the value of all 401(k)s. The picture is actually worse than that because another $1 trillion has been stripped from people who lost or changed jobs and rolled their 401(k)s into individual retirement accounts.

[jgraz]

1. Just another part of the giant Ponzi scheme we call the American Financial System.

[Warren Stupidity]

2. What bullshit they spewed 30 years ago is irrelevant.

For the last 20 years the Official Party Line has been 'you can't rely on social security you have to put your money into private retirement savings plans like 401Ks'.

WHERE IS MY FUCKING BAILOUT?

[Morning Dew]

3. and think of the money we could have lost

if Bush had succeeded in getting our Social Security money into the Stock Market.

[Phoebe Loosinhouse]

4. I think this reeks of BS for one reason:

why did the companies implement "matches" if they were planning to keep their defined benefit programs? The answer is :

They weren't planning on keeping their defined benefit programs, but the match made it look like they still cared and were contributing to their employees retirement and was a gentle way to segue their employees into the new crappy-for-them-but-let's-not-talk-about-it-program.

It was a classic bait and switch. "No, Really, Ed, you'll find that in the long run this will work out a lot better for you and Martha and all the kids". The money they saved from defined benefit programs probably went right into executive pockets as bonuses and stock options. Notice the time frame - 1978. That is EXACTLY when the Greed is Good Gordon Gekkos of the world took over and siphoned that former pension money into their own pockets. It began the age of the celebrity exec and pretty much the entire downfall of the financial and stock markets can be traced back to this. It's also a break of the social contract. Work loyally for a long time for one company and get a pension. No more. This is the beginning of the "You're on you're Own Pal" Era.

Also, many 401K programs stink to high heaven to anyone who has even one tiny little modicum of financial understanding. For some reason, they are often made up of third tier funds at top rate expense rates and they have TREMENDOUS front or back end loads. Either the executives picking them were complete and utter morons, or they were doing their best to line their brother-in-laws or golf foursome buddy's pockets and maybe picking up a little something on the side for themselves.

[caledesi]

6. Good post! NT

[EmeraldCityGrl]

5. Regardless how legit it may appear, whenever a significant amount of

wealth accumulates, the bankers and government will find a way to confiscate it.

Money Markets and CD's will be the next to go.