Stop Believing the Myths About 401(k) Plans

[Omaha Steve]

http://www.afscmeblog.org/2010/12/02/stop-believing-the-myths-about-401k-plans/?__utma=1.1847225545.1261531521.1276731138.1289957884.87&__utmb=1.2.10.1291637298&__utmc=1&__utmx=-&__utmz=1.1283951865.86.5.utmcsr=search|utmccn=%28organic%29|utmcmd=organic|utmctr=people%20pac&__utmv=-&__utmk=63836975

December 2nd, 2010

The former publisher of the Las Vegas Review-Journal wrote a column this week calling public employee pensions “grotesque shadows of their initial good intention” and pushing private savings plans as the future of retirement. Secretary-Treasurer Lee A. Saunders sent a letter, which was published in today’s Review-Journal, defending members and their pensions, and setting the record straight. The letter is below:

To the editor:

In response to Sherman Frederick’s Sunday column, “Public employee pensions: We can’t afford them”:

Mr. Frederick baselessly claims that individual retirement plans are “a better, more responsible way to provide retirement benefits for public workers.” Individual accounts such as 401(k) plans are savings plans, not retirement plans, despite what their boosters may claim. They have put retirement security for millions of Americans at risk, and the Review-Journal does a disservice to its readers when it promotes them.

While Mr. Frederick may be eager to do the bidding of the Wall Street firms that profit at the expense of workers, the truth is that pensions are a better deal. A recent study by the National Institute on Retirement Security found that professionally managed pensions can deliver the same level of benefits at half the cost of a 401(k)-style plan.

The median balance of all 401(k) accounts is less than $13,000, barely a fraction of what is needed for a secure retirement. Market changes can put those who rely on individual retirement accounts at high risk, because 401(k) accounts are rarely professionally managed. As a result of the financial crash that led to the worst economic crisis since the Great Depression, the retirement savings of most baby boomers with 401(k) plans were reduced to levels that may create impoverishment as boomers retire and enter their 70s.

Indeed, there is a gap of $6.6 trillion between what Americans have saved and what they will need in retirement, according to the Center for Retirement Research at Boston College. Instead of eliminating pensions for public employees, we should be doing more to protect the retirement security of all employees. The sooner Mr. Frederick and other pundits stop believing the mythology about 401(k) plans, the better off we’ll all be.

Lee A. Saunders
Washington, D.C.

The writer is secretary-treasurer of the American Federation of State, County and Municipal Employees.

[Hannah Bell]

1. k&r, a scam from day one. i bet a lot of 401ks are getting cashed out these days.

i know several people who already did it. even before the financial crisis. things come up, & it's tempting to "borrow" from the 401k.

i remember the changeover. they were hyped as the greatest thing since sliced bread. every worker was going to be a millionaire by 'investing' their 401ks!

like lambs to the slaughter.

[WhaTHellsgoingonhere]

4. Cashed out 100% July 2008

[sarcasmo]

6. What kind of penalty/hit did you take? My brother in law who lost a job and

had to take a significant when he finally found another job is thinking of cashing his in as well. Is the hit around 40 percent when you withdraw early?

[Lochloosa]

9. It's pretty stiff if you close out the account. 10% penalty plus you pay taxes on it

There are other options.

You can take out a loan on your vested balance or take a hardship withdrawal.

The loan usually has a very low interest rate...6% in my case and with the hardship withdrawal you don't incur the penalty

[sarcasmo]

16. I bet they don't consider extended job loss hardship.

[Lochloosa]

20. Just miss a few house payments and claim it's for saving your home.

[sarcasmo]

21. That is what I am going to tell the brother in law to do if he doesnt' find a job soon.

[pinboy3niner]

12. Here's one good summary on early withdrawals:

http://www.money-zine.com/Financial-Planning/Retirement/401k-Withdrawals/

[WhaTHellsgoingonhere]

18. Actually, I didn't think is was that bad...

...it was far better than:

1. letting the financial planners of the 401K lose more since it had depreciated over 30% already
2. earning a bonus and only receiving about 1/2 of it, which is what you receive when you get a lump-sum payment in the form of a bonus

For 2008 taxes, I didn't take a hit at all because my income for 2008 dropped below $25K as it consisted of temporary work and unemployment benefits.

I only wish I was brave enough to do it in February rather than waiting for July.

[ejpoeta]

5. also if you try to apply for assistance you will be expected to liquidate that

so what's the friggin point. sounds great if the market never goes down and people never lose their job. but reality is different. sounds like the guy who wrote the article touting the 401k must have some incentive to do so. want to hear about a ponzi scheme!!!

[One_Life_To_Give]

13. If you change jobs every 3-5yrs then it's 401k or nothing

For example if you were an Engineer in Silicon Valley during the 80's and 90's. When changing employers was routine every couple of years. Hence one would never expect to qualify for a pension. They are nicely transportable.

[Demeter]

7. Cash Out of Be Cleaned Out by Wall Street's Hucksters

not a hard decision

[One_Life_To_Give]

2. Except Gov'ts havn't been fully funding pensions

From an employers standpoint it makes no difference if where the money goes, 401K, pension account etc. But the laws regarding transferring funds to an employees account require it to be paid now. While current law for pensions allows the employer to invest only a fraction today. Which has resulted in the coming crisis in funding existing Public Employees Defined benefit plans. Putting only 40% of what was required away in investments was never going to be a long term solution. It just kicked the can down the road.

[Greyhound]

3. K&R. This is also directly related to another "financial industry" myth,

that when the stock markets implode, money simply disappears. They created that lie to hide the fact that they steal from all of us.

There is a direct line of theft from the money that was stolen under Raygun/41 to the heist of 2008.

The American Kleptocracy is creating Global Neofeudalism.
:kick: & R

[Odin2005]

8. 401(k)s = scam to give our retirement money to the Banksters.

[One_Life_To_Give]

14. Where do Pensions Invest?

Last I checked the 40cents on the dollar the State bothered to set aside for employees pensions was invested in the market right along with the 401k/403b's.

[Odin2005]

15. Pension funds have a lot more power than individuals

[One_Life_To_Give]

17. Mutual Funds?

The major mutual fund companies all have 401k options. Variety of funds, bonds, cash equiv. etc. And they have funds targeted for specific retirement dates etc. In addition to any brokerage link accounts.

[Common Sense Party]

10. The ignorance is so thick you can cut it with a knife. n/t

[xchrom]

11. recommend

[Tuesday Afternoon]

19. this one needs to stickied to the top of the page. K&R