What Rachel actually said re the three pillars

[malaise]

http://www.msnbc.msn.com/id/26315908/#44968952

http://www.msnbc.msn.com/id/26315908/#44968996

[dkf]

1. She is so incredibly wrong.

The underlying investments of a pension plan or a 401k are the same exact things...ie stocks, bonds, etfs, mutual funds, etc.

Both are managed by entities or people that are being lumped into the Wall Street category, but a pension plan may use a money manager or they can still use mutual funds where a 401k just uses funds or an annuity vehicle where subaccounts pretty much look like mutual funds. The fees may be better for a large pension fund as fees generally get lower when larger amounts are invested. But if the fund uses alternative investments or hedged funds, those fees can rival mutual funds.

It's true that a pension fund will be professionally allocated and overseen, but 401ks can also be allocated through target date funds or asset allocation funds.

A defined benefit pension plan may seem immune to market fluctuations but its investments go up and down the same as mutual funds. If it's underfunded enough, it can be terminated or frozen, or the employer may need to increase contributions. And if the company goes bankrupt, the pension fund may be taken over by the PBGC which has ceilings on benefits and may not pay out what was originally promised.

But pensions are no more disconnected to wall street or wall street fees than 401ks are. That is just wrong wrong wrong.

[NNN0LHI]

2. There is no Pension Benefit Guaranty Corporation for 401k's though

Once someone loses their 401k it is gone. There is no benefit, reduced or otherwise, if someones 401k goes belly up.

See the difference?

Don

[dkf]

3. How is it possible to turn a 401k into a 0?

Unless you invested your entire 401k in your bankrupt company it's impossible.

[Scuba]

5. I saw mine lose half their values in Spring 2000 do.com crash....

... got smarter and moved everything to bonds in 2007.

[dkf]

4. Here is how Rachel's "nest egg" can be affected

Benefit formula changes
You can lose retirement income in a defined-benefit pension without even realizing it when your employer tinkers with the benefit formula. Among the tricks:

The "compensation" part of the equation is changed from the final year (usually the highest-paying) to an average of the last three to five years or to a career average.

The percentage benefit multiplier is cut from, say, 1.9 percent for each year of service to 1.5 percent.

"Compensation" is sliced into two parts: the amount of salary up to the Social Security Wage Base (the maximum salary on which Social Security taxes are levied, $106,800 in 2009) and any salary amounts above that level. Then a lower benefit multiplier is applied to the larger segment of your salary.
PBGC benefit limits

If your employer has not sufficiently funded its pension plan, it could be terminated and taken over by the Pension Benefit Guaranty Corp. That was the case with Bethlehem Steel, United Airlines, and US Airways, which walked away from a total of $13.8 billion in pension liabilities to nearly 280,000 vested participants in 2003 and 2005.

In most cases, you will get the full vested benefit owed to you up to the time the pension plan is terminated. If you earn a high salary, however, you could lose benefits you accrued that exceed the PBGC guarantee limit, which ranges from $12,150 to $54,000 for plans terminated in 2009. How much you'll get depends on your age (45 to 65) and whether you take a straight life annuity or joint annuity with 50 percent survivor benefit.

http://www.consumerreports.org/cro/money/retirement-planning/is-your-pension-secure/overview/is-your-pension-secure-ov.htm