Calls grow to overhaul 401(k) retirement plans

[babylonsister]

Calls grow to overhaul 401(k) retirement plans

The financial crisis, which has caused a dramatic decline in the value of the average worker's account, has undermined confidence in the system.

By Jim Puzzanghera
November 16, 2008


Reporting from Washington -- For nearly three decades, working Americans have been part of a huge experiment with their future well-being: Old-fashioned pensions that guaranteed specific retirement benefits have given way to old-age benefits that depend on personal investing in the financial markets.

But now, with those markets in crisis and the value of workers' investments plunging, a bundle of ideas for modifying the system or replacing it entirely -- ideas shunted aside when the stock market was soaring -- are about to get a careful new look.

For one thing, Democrats have campaigned on the promise of a better deal for middle-class Americans. Also, many workers are aghast at the sudden discovery that their retirement years may be a lot less golden than they expected.

Even for people who have faithfully participated in the new retirement plans, which depend on annual savings and investment in 401(k) and similar accounts, much if not all of what they gained in the stock market over the last 10 years has been wiped out.

So far this year, the average worker's 401(k) account balance has dropped between 21% and 27%, depending on the worker's age and time with his or her employer, according to the Employee Benefit Research Institute.

That's a potentially disastrous turn of events, because the key to making the savings plans work is the hoped-for gains from long-term investing, not just the amount workers set aside.

more...

http://www.latimes.com/news/printedition/front/la-fi-retire16-2008nov16,0,3528768.story

[slackmaster]

1. My "wipeout" horizon goes back to February 2004, not 10 years

I got a statement for a self-directed IRA that was formerly a 401k at my previous job. The balances and positions were eerily, I mean almost spookily, close to what they were when I did the rollover to create the account on 2/19/2004.

So far this year, the average worker's 401(k) account balance has dropped between 21% and 27%, depending on the worker's age and time with his or her employer, according to the Employee Benefit Research Institute.

The only reason the average drop isn't bigger is that people are still contributing to their active 401k accounts. The good news is that dollar-cost averaging will work out positively in the long run, if the recession ends before people have to start mandatory distributions.

[geckosfeet]

2. The magic of compounding interest - that's how they sold us. Now we see

that it is financial institutions that have gained, and we who have lost. They shifted the burden of loss to the individual, and they reaped all the profits but it's all ok because they warned us going in that "performance is not guaranteed.".

[JeanGrey]

3. I still have more money than I would have investing in any

other method. I'm not sorry, I only wish I had taken it out when the stock market reached 14,000. I knew those stupid loans were going to hurt us bad but I didn't pay attention.

[geckosfeet]

4. It goes far far beyond the loans - I presume you mean mortgages.

The false equity and wealth that traders attributed to derivative financial instruments that no one understands, and frankly make no sense is collapsing. Unfortunately, much of real wealth that our 401k and IRA's have is being sapped to cover the losses of these fake investments.

They gambled, we pay.

[JeanGrey]

5. The subprime loans started the fall.