More 401(k) scare...
For many workers the future of pensions was the 401(k) plan. Defined benefit plans were deemed too expensive, so we were supposed to save our own money for our own retirement. The company's contribution ranged from a small to an occasionally generous match.
In terms of public policy, the biggest problem facing 401(k)s -- and similar programs for nonprofits -- was getting people to sign up. This was a great deal for most people because it included a tax deferment on those invested dollars. Add the company match, free money, and what wasn't there to like? Still fewer than 40 percent of workers participate.
But even that number could decline soon. The noble 401(k) experiment may be disappearing before our eyes.
This past year, workers who invested their 401(k)s in the stock market have seen significant declines in their savings plans.
Tuesday, December 30, 2008
Monday, December 22, 2008
ICI urges Congress to maintain 401(k) system
The Investment Company Institute has launched a preemptive strike against efforts by lawmakers to change the 401(k) system, including lowering tax breaks for the plans. "Some policymakers would have us abandon the 401(k) system," ICI President and Chief Executive Officer Paul Schott Stevens said. "But millions of Americans who are saving for retirement through 401(k) and similar plans want nothing to do with that." But Stevens does support "automatic individual retirement accounts" and suggested workers receive more investment advice. InvestmentNews (12/19)
Friday, December 19, 2008
FedEx joins companies dropping 401(k)s
FedEx Corp. (NYSE:FDX) has announced it is the most recent U.S. company to at least temporarily cancel all 401(k) matching contributions for its employees.
ABC said in addition to dropping all 401(k) payments for at least one year, the company suspended all pay raises for 2009 and implemented a 5 percent pay cut for all its salaried workers.
ABC said in addition to dropping all 401(k) payments for at least one year, the company suspended all pay raises for 2009 and implemented a 5 percent pay cut for all its salaried workers.
Thursday, December 11, 2008
Re-inflating our 401(k)s
Have you heard about the Plot Against Your 401(k)? It's not going to go away.
The issue surfaced during the presidential campaign when economist Teresa Ghilarducci testified at a congressional hearing about what she sees as a Plot Against Pensions (which is part of the subtitle of her book on the subject).
Ghilarducci, and a fair number of sympathetic Democrats, believe that 401(k)s and similar defined-contribution pension plans are a disaster for middle-class Americans. Her timing is apt, since the recent market collapse has many 401(k) owners thinking exactly the same thing.
Ghilarducci wants voluntary 401(k)s to be replaced with a mandatory government program that would allow retirees to turn in their sagging 401(k)s in exchange for guaranteed government payouts.
This set off a round of attacks by conservative talk-show hosts including some who railed against government "seizure" of private 401(k)s. It wouldn't be a seizure, since existing accounts would be grandfathered.
That doesn't mean there are no problems with the idea, but, as Time magazine columnist Justin Fox wrote recently, there are problems as well with existing plans.
The term 401(k) refers to a section of the Internal Revenue Code that allows an employee to put pretax money into a private retirement account, where it is invested in stocks and bonds and can grow, tax-free, until retirement, at which time it is taxed on withdrawal.
The issue surfaced during the presidential campaign when economist Teresa Ghilarducci testified at a congressional hearing about what she sees as a Plot Against Pensions (which is part of the subtitle of her book on the subject).
Ghilarducci, and a fair number of sympathetic Democrats, believe that 401(k)s and similar defined-contribution pension plans are a disaster for middle-class Americans. Her timing is apt, since the recent market collapse has many 401(k) owners thinking exactly the same thing.
Ghilarducci wants voluntary 401(k)s to be replaced with a mandatory government program that would allow retirees to turn in their sagging 401(k)s in exchange for guaranteed government payouts.
This set off a round of attacks by conservative talk-show hosts including some who railed against government "seizure" of private 401(k)s. It wouldn't be a seizure, since existing accounts would be grandfathered.
That doesn't mean there are no problems with the idea, but, as Time magazine columnist Justin Fox wrote recently, there are problems as well with existing plans.
The term 401(k) refers to a section of the Internal Revenue Code that allows an employee to put pretax money into a private retirement account, where it is invested in stocks and bonds and can grow, tax-free, until retirement, at which time it is taxed on withdrawal.
Tuesday, December 9, 2008
Charles Schwab Releases Summary of Recent 401(k) Plan Participant Behavior
Charles Schwab has found that participant engagement in Schwab-serviced 401(k) plans increased dramatically both online and over the phone in the months of September and October 2008. And while the number of people reducing their contribution rates into plans has increased, the majority of participants in Schwab-serviced plans are not significantly shifting asset allocations or reducing contribution rates. Schwab recently released information about retirement plan participant behavior to help employers better understand how their employees are approaching their 401(k) plans in the current market and economic environment.
Here is a summary of Schwab-serviced retirement plan participant behavior for September and October 2008:
Here is a summary of Schwab-serviced retirement plan participant behavior for September and October 2008:
Monday, December 8, 2008
Should the 401k Be Killed?
Teresa Ghilarducci has always had more interesting — and controversial — things to say than your average retirement-policy wonk. An economist who moved this year from the University of Notre Dame to the New School for Social Research in New York City, she has railed for years against the decline of the traditional pension. She recently wrote a book subtitled The Plot Against Pensions and the Plan to Save Them; the less contentious main title is When I'm Sixty-Four.
Still, as she sat at the witness table on Oct. 7 at a hearing of the House Committee on Education and Labor, running through the litany of what's wrong with the 401(k) and other defined-contribution retirement plans — they have high fees, for one — Ghilarducci didn't think she was courting controversy. "I was saying things that seemed completely milquetoast," she recalls. Ghilarducci did bring up a bold proposal to replace the 401(k) with a mandatory, government-run pension plan and suggested that Congress immediately allow retirees to swap 401(k)s battered by the stock market's collapse for monthly payouts from the government. But she had floated both ideas before, to little effect. (See pictures of the global financial crisis.)
This time, all hell broke loose. Her proposal caught the attention of talk-radio juggernaut Rush Limbaugh, and over the next few weeks Limbaugh hammered on Ghilarducci's idea as a Democratic plot to kill the 401(k). "McCain has gotta tie Obama to these people," he said on the air. Republican presidential candidate John McCain did try, but only perfunctorily. It didn't help him much on Election Day.
Limbaugh has since dropped the subject, but it is far from dead. In fact, it's evolving. While Limbaugh took care to describe Ghilarducci's proposals correctly even as he castigated them, word has since spread, and warped, in some conservative circles of a purported Democratic plan to confiscate 401(k)s. Ghilarducci, who thinks existing accounts should be grandfathered under any new scheme, says she's still being swamped with email from people berating her for trying to steal their money. (That's Wall Street's job, isn't it?)
Meanwhile, Ghilarducci's long list of 401(k) deficiencies hasn't gotten any shorter, and the Democrats, who as of January will dominate Washington, may just try to do something about them...
Still, as she sat at the witness table on Oct. 7 at a hearing of the House Committee on Education and Labor, running through the litany of what's wrong with the 401(k) and other defined-contribution retirement plans — they have high fees, for one — Ghilarducci didn't think she was courting controversy. "I was saying things that seemed completely milquetoast," she recalls. Ghilarducci did bring up a bold proposal to replace the 401(k) with a mandatory, government-run pension plan and suggested that Congress immediately allow retirees to swap 401(k)s battered by the stock market's collapse for monthly payouts from the government. But she had floated both ideas before, to little effect. (See pictures of the global financial crisis.)
This time, all hell broke loose. Her proposal caught the attention of talk-radio juggernaut Rush Limbaugh, and over the next few weeks Limbaugh hammered on Ghilarducci's idea as a Democratic plot to kill the 401(k). "McCain has gotta tie Obama to these people," he said on the air. Republican presidential candidate John McCain did try, but only perfunctorily. It didn't help him much on Election Day.
Limbaugh has since dropped the subject, but it is far from dead. In fact, it's evolving. While Limbaugh took care to describe Ghilarducci's proposals correctly even as he castigated them, word has since spread, and warped, in some conservative circles of a purported Democratic plan to confiscate 401(k)s. Ghilarducci, who thinks existing accounts should be grandfathered under any new scheme, says she's still being swamped with email from people berating her for trying to steal their money. (That's Wall Street's job, isn't it?)
Meanwhile, Ghilarducci's long list of 401(k) deficiencies hasn't gotten any shorter, and the Democrats, who as of January will dominate Washington, may just try to do something about them...
Don't give up on your 401(k)
Employees should maintain contributions to 401(k) plans even if their company stops matching them, as General Motors Corp. did recently, financial planners say.
There are immediate tax benefits in any 401(k) regardless of an employer match, said Rob Williams, a fee-only financial planner at Columbia, Md.-based Baltimore-Washington Financial Advisors.
"Employees cannot cut back," Williams said. "If anything, contributions might have to go up. For every $100 people put into the plan, it's reducing their taxes by $35. The money they lose from their budget is only $65."
A 401(k) plan or an Individual Retirement Account is crucial, financial advisers say, since fewer employers offer traditional pension plans, and for most people, Social Security alone won't be enough to maintain their lifestyle in retirement.
There are immediate tax benefits in any 401(k) regardless of an employer match, said Rob Williams, a fee-only financial planner at Columbia, Md.-based Baltimore-Washington Financial Advisors.
"Employees cannot cut back," Williams said. "If anything, contributions might have to go up. For every $100 people put into the plan, it's reducing their taxes by $35. The money they lose from their budget is only $65."
A 401(k) plan or an Individual Retirement Account is crucial, financial advisers say, since fewer employers offer traditional pension plans, and for most people, Social Security alone won't be enough to maintain their lifestyle in retirement.
Friday, December 5, 2008
Should the 401k Be Killed?
Teresa Ghilarducci has always had more interesting — and controversial — things to say than your average retirement-policy wonk. An economist who moved this year from the University of Notre Dame to the New School for Social Research in New York City, she has railed for years against the decline of the traditional pension. She recently wrote a book subtitled The Plot Against Pensions and the Plan to Save Them; the less contentious main title is When I'm Sixty-Four.
Still, as she sat at the witness table on Oct. 7 at a hearing of the House Committee on Education and Labor, running through the litany of what's wrong with the 401(k) and other defined-contribution retirement plans — they have high fees, for one — Ghilarducci didn't think she was courting controversy. "I was saying things that seemed completely milquetoast," she recalls. Ghilarducci did bring up a bold proposal to replace the 401(k) with a mandatory, government-run pension plan and suggested that Congress immediately allow retirees to swap 401(k)s battered by the stock market's collapse for monthly payouts from the government. But she had floated both ideas before, to little effect. (See pictures of the global financial crisis.)
Still, as she sat at the witness table on Oct. 7 at a hearing of the House Committee on Education and Labor, running through the litany of what's wrong with the 401(k) and other defined-contribution retirement plans — they have high fees, for one — Ghilarducci didn't think she was courting controversy. "I was saying things that seemed completely milquetoast," she recalls. Ghilarducci did bring up a bold proposal to replace the 401(k) with a mandatory, government-run pension plan and suggested that Congress immediately allow retirees to swap 401(k)s battered by the stock market's collapse for monthly payouts from the government. But she had floated both ideas before, to little effect. (See pictures of the global financial crisis.)
Students could see 401(k)s disappear
Economic pressure put on companies by the failing stock market has caused some companies to consider drastic measures to remain effective.
The measures these companies are taking could affect those are trying to obtain a 401(k).
"The first big issue is that companies are considering stopping 401(k)s," said Thomas Saving, professor in the Private Enterprise Research Center and Jeff Montgomery professor of economics at Texas A&M University.
A 401(k) is a plan for retirement someone at any job may opt to have. Stopping the 401(k)s is not the only issue companies face.
"The second big issue is that the individuals are going to try to utilize their 401(k)s and you can do that in several ways. You can borrow money from your 401(k) and pay it back. Now, if you do that, there are penalties in order to not go further into debt," Saving said.
The third issue, Saving said, is that the government is considering making 401(k)s government-run because of the mistakes people have made handling their own money.
The measures these companies are taking could affect those are trying to obtain a 401(k).
"The first big issue is that companies are considering stopping 401(k)s," said Thomas Saving, professor in the Private Enterprise Research Center and Jeff Montgomery professor of economics at Texas A&M University.
A 401(k) is a plan for retirement someone at any job may opt to have. Stopping the 401(k)s is not the only issue companies face.
"The second big issue is that the individuals are going to try to utilize their 401(k)s and you can do that in several ways. You can borrow money from your 401(k) and pay it back. Now, if you do that, there are penalties in order to not go further into debt," Saving said.
The third issue, Saving said, is that the government is considering making 401(k)s government-run because of the mistakes people have made handling their own money.
Tuesday, December 2, 2008
Younger 401(k) Participants Saw Account Balance Hike in Downturn
That was according to the latest data released by the Employee Benefit Research Institute (EBRI) and the Investment Company Institute (ICI) that have been collaborating since 1996 on a 401(k) database, according to a news release.
EBRI/ICI data show that participants up to 35 years old (as of 2006) who had one to five years on the job saw an average account balance increase of 35% between January 1, 2007, and November 26, 2008. Those with between six and 10 years were only up slightly, while those with 11 to 20 years on the job lost an average of approximately 6%.
The biggest losers, according to the EBRI/IRC data, were those age 36 to 45 with 21 to 30 years on the job who saw an average setback of 15% in their 401(k) balances in the January 1, 2007, to November 26 period. Those with 11 to 20 years on the job in the same age group suffered an approximate 11% average balance decline.
Among older participants, the EBRI/ICI data showed that workers with 21 to 30 years on the job who are 56 to 65 years old saw an average 401(k) balance decline of about 11%.
EBRI/ICI data show that participants up to 35 years old (as of 2006) who had one to five years on the job saw an average account balance increase of 35% between January 1, 2007, and November 26, 2008. Those with between six and 10 years were only up slightly, while those with 11 to 20 years on the job lost an average of approximately 6%.
The biggest losers, according to the EBRI/IRC data, were those age 36 to 45 with 21 to 30 years on the job who saw an average setback of 15% in their 401(k) balances in the January 1, 2007, to November 26 period. Those with 11 to 20 years on the job in the same age group suffered an approximate 11% average balance decline.
Among older participants, the EBRI/ICI data showed that workers with 21 to 30 years on the job who are 56 to 65 years old saw an average 401(k) balance decline of about 11%.
Federal Reserve 401(k) Dodges Stock Market Meltdown With Stable-Value Products, Author Finds
One of many articles to convince you that Wall Street is broken and the Feds should take over our retirement.
Barry J. Dyke, author of The Pirates of Manhattan found that the majority of employee assets in the huge $4.5 billion Federal Reserve System 401(k) dodged most of the stock market meltdown by having a majority of its assets invested in stable-value life insurance products.
According to a third quarter 2008 Federal Reserve report and a Deloitte audit, which covers 22,000 employees at the Fed, more than $3.15 billion or 69.7% of the $4.5 billion 401(k) Thrift Plan for the Employees of the Federal Reserve System is invested in its Fixed Income Fund. This fund is exclusively invested in stable-value group annuity contracts from major U.S. life insurance companies—not volatile mutual funds.
Unlike mutual funds, which do not guarantee safety of principal, stable-value products guarantee safety of principal and competitive annual earnings. Fed employees have embraced stable-value life insurance products over volatile equities. According to a Deloitte audit, in 2006 Fed employees placed 64% of their money into the Fixed Income Fund and in 2005 67.9%.
A nationally known critic of the mutual fund industry, deregulated banks and the speculation mania ignited by Wall Street—Dyke predicted a market collapse in May 2007 when The Pirates of Manhattan was released www.ThePiratesofManhattan.com. Using government research, the author documents that the mutual fund business was full of poor performance, excessive trading, over speculation, misinformation ,corruption, greed and little oversight—all key ingredients to a speculation bubble.
Stock mutual funds, the primary investments of the nation’s 401(k)s, have seen their returns decimated during the past eighteen months. According to Lipper, Inc. with the Dow Jones Industrial Average down 9.1% in November, average total returns on stock mutual funds, U.S. and international are down 50% in 2008. The mutual fund industry lost more that 20% of their assets in the past five months, falling to $9.5 trillion assets under management from a high of $12 trillion in May 2008.
However, with 69.7% of its 401(k) assets in stable-value insurance products, Federal Reserve employees have for the most part dodged the market meltdown which side swiped most Americans. The stable-value Fixed Income Fund gives a 5.8% 2008 return. Their Government Securities Fund has returned 3.5% year to date. Other Fed investments performed dismally. Their Equity Fund is down -18.8%, Equity Index -18.4%, International Equity –28.8% and Small Company Equity -11.9%.
The Fed’s use of stable-value insurance products for it’s 401(k), even though it has proven to be a successful strategy, flies in total opposition to the mutual fund industry long standing efforts to exclude insurance products from 401(k) plans.
Barry J. Dyke, author of The Pirates of Manhattan found that the majority of employee assets in the huge $4.5 billion Federal Reserve System 401(k) dodged most of the stock market meltdown by having a majority of its assets invested in stable-value life insurance products.
According to a third quarter 2008 Federal Reserve report and a Deloitte audit, which covers 22,000 employees at the Fed, more than $3.15 billion or 69.7% of the $4.5 billion 401(k) Thrift Plan for the Employees of the Federal Reserve System is invested in its Fixed Income Fund. This fund is exclusively invested in stable-value group annuity contracts from major U.S. life insurance companies—not volatile mutual funds.
Unlike mutual funds, which do not guarantee safety of principal, stable-value products guarantee safety of principal and competitive annual earnings. Fed employees have embraced stable-value life insurance products over volatile equities. According to a Deloitte audit, in 2006 Fed employees placed 64% of their money into the Fixed Income Fund and in 2005 67.9%.
A nationally known critic of the mutual fund industry, deregulated banks and the speculation mania ignited by Wall Street—Dyke predicted a market collapse in May 2007 when The Pirates of Manhattan was released www.ThePiratesofManhattan.com. Using government research, the author documents that the mutual fund business was full of poor performance, excessive trading, over speculation, misinformation ,corruption, greed and little oversight—all key ingredients to a speculation bubble.
Stock mutual funds, the primary investments of the nation’s 401(k)s, have seen their returns decimated during the past eighteen months. According to Lipper, Inc. with the Dow Jones Industrial Average down 9.1% in November, average total returns on stock mutual funds, U.S. and international are down 50% in 2008. The mutual fund industry lost more that 20% of their assets in the past five months, falling to $9.5 trillion assets under management from a high of $12 trillion in May 2008.
However, with 69.7% of its 401(k) assets in stable-value insurance products, Federal Reserve employees have for the most part dodged the market meltdown which side swiped most Americans. The stable-value Fixed Income Fund gives a 5.8% 2008 return. Their Government Securities Fund has returned 3.5% year to date. Other Fed investments performed dismally. Their Equity Fund is down -18.8%, Equity Index -18.4%, International Equity –28.8% and Small Company Equity -11.9%.
The Fed’s use of stable-value insurance products for it’s 401(k), even though it has proven to be a successful strategy, flies in total opposition to the mutual fund industry long standing efforts to exclude insurance products from 401(k) plans.
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