More bad news for pensions today

**PRICEPLUS** · 01-16-2006, 04:36 PM

Re: More bad news for pensions today

That may be the way things are in the future as companies look to cast off pension expenses. Those who were promised a pension should be paid that pension!

**jmjj215** · 01-17-2006, 05:03 AM

Re: More bad news for pensions today

I agree w/ both of you. They shouldn't avoid what they've already promised, but I'm all for 401(k) plans going forward - with maybe a bit more education for the general public about investing as an additional add-in!

**cercis** · 01-17-2006, 06:37 PM

Re: More bad news for pensions today

How do most 401(k)s work? In my job, we had a limited number of choices for investment. A supposedly "safe" fund, a growth fund, and company stock. The match was strictly company stock. You could move it over, after you'd held it a year, but you had to know the exact amount that you had held a year and you could only do it once/year. We were told that we had to use the company's choices, there was no choice to move it away (no rollover option) unless you no longer worked for them.

I didn't put anything in the company fund and had my deposits split pretty evenly between the other two. I lost big. There was no way I could have helped but lose big, all 3 choices lost big. That was when they laid us off, so I had to take the losses and move to an IRA (maybe, just maybe, if I had been able to stay in and hold onto the shares, they would have recovered).

Of course, my company was sued and lost and I got $34 for the class action suit.

But, after that experience, I'm not so much into 401(k)s. I'll participate if I ever get another job with one, but I'll consider it suspect at best.

**sweeps** · 01-17-2006, 06:54 PM

Re: More bad news for pensions today

cercis, I'm sorry to hear about your situation. Yes, usually the investment options in 401(k)'s are somewhat limited and not always ideal, and getting stuck in company stock is usually a bad thing. But your situation is a bit extreme. Most 401(k)'s have more than just 3 investment choices. Also did this happen during 2001-2003? *Anyone* in growth stocks got punished during that time period.

Plus look at it this way -- if your company is tanking, do you really trust that your pension is safe? All they have to do is file chapter 11, and you're at the mercy of the PBGC.

**cercis** · 01-17-2006, 06:57 PM

Re: More bad news for pensions today

It was 1998-2000 - when stocks were growing strong. That's probably why the class action suit was successful (it was for mismanaging the funds).

I just don't see that 401(k)s really offer you the control. There's a small amount more control, but you're still at the mercy of your company. But, I'm willing to learn about different systems since I only had one experience (and clearly it was bad, they were sued and the suit was successful).

Did I mention I'm skeptical by nature?

**sweeps** · 01-17-2006, 07:06 PM

Re: More bad news for pensions today

Yikes -- that's a serious situation. You're definitely at the mercy of your investment options. If the available funds are crap, then you're much better off just putting your money in a Roth, no doubt.

But the thing to remember is the money in your 401k account is yours. Your company can't take that away from you (without fraud which is apparently what happened in your situation). Rarely are there guarantees on your pension money. It's just an accounting shell game.

**baselle** · 01-17-2006, 07:10 PM

Re: More bad news for pensions today

How my 2 403Bs (401Ks for academia and non-profits) worked was money deducted straight from my paycheck was deposited into the plan either monthly or each payperiod. Currently, I think that the $ are put in monthly, along with the match. Our plan is administered by Merrill Lynch, and we have about 9 broad choices - bond, total stock, mid cap, small cap, value, international, etc.

The really sneaky thing is the fee. Our plan administrator used to be Vanguard, with tiny fees. Now we have "moderate" fees. Grr. The plan doesn't list the fee charged as a separate line, so you don't know when and how big a bite they take. And bite they will, whether the fund does well or not. The plan administrator has basically shoved the risk onto the participant.

We also have a little wrinkle - a little retirement account running parallel to the 403B. We are vested after 6 years. I'm 80% vested, about 2 weeks from being 100% vested.

Its ironic. Out of the three legged stand for retirement - social security, pension, personal savings - pension is weakest one.

cercis - your choices truly sucked. I wouldn't be in 401Ks after your experience, either.

**baselle** · 01-17-2006, 07:17 PM

Re: More bad news for pensions today

Originally posted by Sweepsplayer

But the thing to remember is the money in your 401k account is yours. Your company can't take that away from you (without fraud which is apparently what happened in your situation). Rarely are there guarantees on your pension money. It's just an accounting shell game.

Unfortunately, its your paycheck..kinda. The accounting shell game is when the company fools around with the time when they put your paycheck into the plan. There are companies that play the float, you know. I'm lucky its monthly, but there are some companies that wait up to 60 days before they put "your" money into the plan.

**jmjj215** · 01-18-2006, 05:01 AM

Re: More bad news for pensions today

As 401(k)s become even more prevalent, I think we'll see companies offering better options within them. Cercis, sorry about all that happened to you though! That really is unfortunate.

**cercis** · 01-18-2006, 01:05 PM

Re: More bad news for pensions today

I think better options would help, but someone else touched on another issue with "private plans".

SS has an operating cost of something like 2%. Private investment management generally runs at least 5% or more. Private funds instead of SS will result in less net because there will be more withheld for operating expenses (I've seen estimates up to 15% for management costs).

**VJW** · 01-19-2006, 02:15 AM

Re: More bad news for pensions today

Yep. The overhead costs in the private sector are FAR higher than with SS. Commissions, management fees, 12(B)-1 fees, and lord help you if you’re paying load and/or redemption fees.

Not to mention that proposing to eliminate one of the legs of a three-legged stool is never prudent, particularly since the 401(k) leg has been performing so badly.

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**sweeps** · 01-19-2006, 02:58 AM

Re: More bad news for pensions today

Ok, VJW, where's the chart that shows the "401(k) sector" (whatever that means) is performing badly? I've averaged 13% returns ever since I've been putting money into a 401. I know a lot of other people whose investments have also performed very well. But maybe I'm living in a fantasy world, who knows.

**VJW** · 01-19-2006, 03:20 AM

Re: More bad news for pensions today

Chart ? We don’t need no stinkin’ charts. How about a reality check ?

* 10,952.18 - Dow Jones close on November 7th, 2000 (election day)

* 10,717.50 - Dow Jones close on December 31st, 2005

In inflation-adjusted dollars, the stock market would have to be over 12,500 just to get back to where it was in November of 2000. The stock market has TANKED by thousands of points, and is down about 15% over the last five years.

Oh, and exactly where did you get the supposed “401(k) sector” quote, and why would I know what the heck it is ?

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**sweeps** · 01-19-2006, 05:07 AM

Re: More bad news for pensions today

Hmm, yeah, I'm not sure where I got that 401(k) sector thing from.

But back to the real point.

1. Anyone could slice and dice a performance chart to find a really bad short-term streak for stocks. Why not just go for the ultimate slam dunk and choose 1929-1933?

You like to tiptoe around the big picture. What about the serious gains people earned from 1980 to 2000? Oh-- I guess that's not important.

2. If you're putting all your retirement money in the Dow 30, then you have to expect some serious volatility in the short run. A better question would be, what is the performance of a balanced portfolio that includes large U.S. stocks, small U.S. stocks, international stocks, bonds, and hard assets/real estate?

3. Have you factored dividends into your analysis? Capital gains aren't the only way investors make money.

4. It really puzzles me why someone would say to their company, "You know what, you hang on to that $X. Don't give it to me now. I trust you'll take good care of it over the next 30-40 years, even if you go through tough times including bankruptcy." If you're really risk-adverse, why not just take that money and stick it in your 401(k)'s money market fund? I bet the employees of United Airlines wish they could have done that...

More bad news for pensions today