Are 401(k)s Still Viable for Saving?

[Omaha Steve]

http://www.washingtonpost.com/wp-dyn/content/article/2008/10/11/AR2008101100177_pf.html

Retirement Wreck
Are 401(k)s Still Viable for Saving?

By Nancy Trejos
Washington Post Staff Writer
Sunday, October 12, 2008; F01

For many Americans, 401(k) plans were supposed to be their own little golden parachutes into retirement.

Now, it seems, those parachutes may not open in time.

The global financial crisis that revealed the flaws of Wall Street has also exposed the vulnerability of America's retirement system. Employers have increasingly abandoned traditional pensions, forcing workers to rely on 401(k)s and similar plans that have a lot more exposure to the stock market. The assumption was that even if the market suffered short-term losses, over time it would rise, allowing workers to recoup their savings. But the steepness of this year's market collapse and the still-uncertain depth of the economic downturn has prompted lawmakers, academics and economists to question the wisdom of letting workers hitch their retirement fortunes to the precariousness of the stock market.

So far this year, the Dow Jones industrial average is down 36 percent, eroding the savings of millions of Americans and forcing those who had planned to retire in the next few years to reconsider their plans.

"Right now, we're really seeing the risks come home, and people are recognizing the extent to which their retirement savings are on the line when the stock market goes down drastically," said Jacob Hacker, a political science professor at the University of California at Berkeley who chronicled the advent of 401(k) plans in "The Great Risk Shift."

Until three decades ago, Social Security and pensions, formally known as defined-benefit plans, were the main sources of retirement income. Now, Social Security is in danger of eventually running out of money. And defined-benefit plans, in which employers made the investment decisions and promised to pay employees a set amount each month for the rest of their lives, are quickly disappearing.

Favored by the "ownership society" movement, defined-contribution plans, which 401(k)s fall under, have picked up the slack. In 1985, there were 29 million participants in defined-benefit plans and 10 million in 401(k)s. In 2005, there were 21 million in defined-benefit plans and 47 million in 401(k)s. The government has encouraged that shift, providing $80 billion in tax breaks each year to people who store their money in 401(k)s. But in return, workers have had to assume the investment responsibilities even if they know little about the stock market. They have also had to give up their lifetime guarantee of income.

FULL story at link.

[antigop]

1. imo, we need to bring back defined benefit pensions

A national pension plan, with a trust fund that is actuarially funded, and COLAs would be a great idea.

If you ask any actuary, he/she will tell you the most efficient way of providing retirement benefits to large groups of people is through a defined benefit plan.

[Myrina]

2. Shit, don't tell me bad news ... I just opened a 401k this morning ...

:cry:

[Common Sense Party]

3. Best thing you could have ever done. Good move on your part. nt

[TreasonousBastard]

4. Sure they are, and don't forget that...

pension funds go broke, too, when the market tanks. Besides, pensions have been underfunded for years, since too many companies assume hardly anyone will be vested. At least a 401-K doesn't mean you have to work there forever to get anything.

And small businesses rarely have enough money to put away into a defined benefit plan, to say nothing of the costs of setting one up, although they often enough can come up with some matching money for a 401-K.

Just make sure the money going in is reasonably balanced, and if you're young it can be heavily into stocks, butas you age, move it into safer stuff.

(Yeah, defined benefit pensions were really nice, but methinks they are seeing their end of times.)

[MindPilot]

5. No, and they never were. It is important to know this history.

401k plans are what we got when Wall Street plundered our pensions.

This is why any bailout is a bad idea and should not find support from any liberal or progressive; the current bailout is just one more in a long string of bailouts that transfer wages from the pockets of working people to the offshore accounts of the bankers and traders.

We are probably not too far from a system where your entire paycheck is "invested" and if the traders who run the "market" see enough return, they'll let you have a few bucks to spend on food and rent.