Last Night: The Drawbacks of 401k Plans on PBS Frontline

[Fern]

Anyone catch the Frontline show last night on investing for retirement, and how many Ameircans are getting shafted by companies pulling out the pension plans from under their feet, and the inadequacies of 401k plans?

Pretty scary stuff, but i like to see this from time to time cus it re-motivates me to save more.

They profiled several older couples who were just a few years away from retirement when they lost their pensions, the one husband had to go back to work as a truck driver, etc.

The basic impression it left with me was how many of the people in the show ended up in the very sad situation of living a retirement lifestyle that was NOT what they had pictured or imagined, in other words, not nearly as comfortable as they assumed it would be.

[sweeps]

Re: Last Night: The Drawbacks of 401k Plans on PBS Frontline

I didn't see it... Wish I would've Tivo'ed it. Did he lose his pension completely? Usually you at least get part of it back from the PBGC.

[sakigt]

Re: Last Night: The Drawbacks of 401k Plans on PBS Frontline

I think they spoke about it on NPR. Basically people need to be more involved in planning their retirement. Its certainly not as easy as people would like to believe.

[Haku]

Re: Last Night: The Drawbacks of 401k Plans on PBS Frontline

I've asked my employer about that when I first started working there.

He said that our 401k doesn't involve the company stock-wise (because it's still a private company) and that management is done by a separate brokerage. So, in theory, even if the company I work for tanks, my 401k should still be safe.

However, subjects like this is very alarming to me, and I will take a closer look at it.

[fultron]

Re: Last Night: The Drawbacks of 401k Plans on PBS Frontline

How about the people who never have a chance to take advantage of their 401k because they can't afford to. Rising bills, low salary increases and a greater burden of healthcare costs all contribute to less disposable income for many Americans. Rather than investing in their 401k, they have to use the money to put food on the table.

[baselle]

Re: Last Night: The Drawbacks of 401k Plans on PBS Frontline

Yes, I watched it. Scary stuff, even for someone my age - 40s.
Great points:
the 401K was supposed to be a supplement to pension, not a replacement of it;
even people who are funding a 401K (1/2 are not), most are not putting in enough, say 15-18% of salary including the match;
people who have the most in their 401K put in the most and manage it the best - the rich get richer and the poor get poorer.

My quibble is that the program didn't talk too much about 401K fees and inexorable they are. You do well - 2%. You do badly - 2%. Maybe next time.

Remember that merely having a 401K does not make you bulletproof, especially if you put in the minimum to get the match, you put it all in something like a money market fund, and you don't rebalance.

[obi_positive]

Re: Last Night: The Drawbacks of 401k Plans on PBS Frontline

How about the people who never have a chance to take advantage of their 401k because they can't afford to. Rising bills, low salary increases and a greater burden of healthcare costs all contribute to less disposable income for many Americans. Rather than investing in their 401k, they have to use the money to put food on the table.

I see what you're saying. But I think that because of rising bills, low salary and healthcare costs, I have to take advantage of my company's retirement plan. I put in only what they'll match, I'm fully vested, the money is taken out pre-tax, and I've picked some good funds that have been doing well. It's the best raise I've ever had.

Unfortunately we do struggle to make ends meet. But for me, living paycheck-to-paycheck with a little money that's tucked away and growing feels a lot more secure than just living paycheck-to-paycheck.

[VJW]

Re: Last Night: The Drawbacks of 401k Plans on PBS Frontline

let's be careful with the broad brush strokes there... my company picks up the tab on all fees related to my 401(k). I don't even pay the loads on the funds within the plan (which is a good thing since they only offer two without any!)

ya lost me just a bit with the "people who have the most in their 401k put in the most" statement. wouldn't that be a reasonable assumption? co-worker buys a car he can't afford, I put the money instead into my 401(k), am I a bad person now because I'm "richer?"

No, but the reality is that 401K plans are like all the other mechanisms that require funding. IRAs, ROTHs, HSAs, MSAs, KEOGHs, etc. They all benefit the wealthy more, as they have a lot more disposable income to fund such investments. Not to mention what baselle wrote, "the rich get richer and the poor get poorer" has never been more true than over the last five years, with the gap once again widening at an alarming rate.

Why must everything in this country be skewed to benefit the wealthy ? It doesn't benefit the rest of the citizenry, and actually damages the national economy.

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[sakigt]

Re: Last Night: The Drawbacks of 401k Plans on PBS Frontline

How about the people who never have a chance to take advantage of their 401k because they can't afford to. Rising bills, low salary increases and a greater burden of healthcare costs all contribute to less disposable income for many Americans. Rather than investing in their 401k, they have to use the money to put food on the table.

Excuses, excuses.

I cannot afford to put a lot away in my 401k but I am simply putting my raise away each year. This year is the first.

50 pretax dollars isnt a lot, but its a start.

[JoyJoy]

Re: Last Night: The Drawbacks of 401k Plans on PBS Frontline

You will be able to watch it online Thursday.



I believe most of the Frontline programs are watchable from the PBS site.


That's where I watched the Secret History of the Credit Card, a very good one.

Wow thanks for this site and the Mvesta one on credit cards, rexdart!!! There are many other topics there that will be interesting to watch as well. There goes more computer time for me, but it is time well worth investing on the PBS site.

The program "Can You Afford To Retire?" will be available for viewing online starting Thursday at 5PM EST. Hubby wants to see that one too! Thanks again!

[Haku]

Re: Last Night: The Drawbacks of 401k Plans on PBS Frontline

I did hear a NPR radio segment on something called Individual Development Accounts or IDAs for short. The basic idea behind it is a 401k like matching program to help low-income families save and grow. The basic difference is that it's not a retirement account, and the money can be applied to just about anything such as a car or a house.

The radio said that the biggest thing is that some low-income households don't know how to save. However, for those who do work and do learn to save, this program has made a huge difference for them.

Just thought it'd be interesting to share that.

[sweeps]

Re: Last Night: The Drawbacks of 401k Plans on PBS Frontline

I like the idea of matching funds over giveaways. Kind of a "you meet us halfway, we meet you halfway." This helps those who need it while still providing incentive for them to improve their productivity.

[baselle]

Re: Last Night: The Drawbacks of 401k Plans on PBS Frontline

I like that Haku...I'd be worried about some possible abuses -- hopefully such a program would have limitations, it would be terrible to see the money get lost on gambling, drugs, stuff like that.

Something my company does that may be different from others is they don't match contributions. What they do is put about 4% of your salary (that's variable based on the company's profitability) into your 401(k) account each year. Doesn't matter if you participate or not, they put it in there.

With that though, comes a need to better educate. I recently had an impromptu "class" with several of my younger co-workers. These guys are all relatively recent college grads, programmers and system administrators, and I'm just a grunt but none of them had done anything with their accounts. As you can imagine, their money was being placed in the most conservative investments that were available.

So yeah, maybe that's it, a guideline of some sort requiring employers to put money in the accounts but still leaving control in the hands of the employee. The account is the property of the employee so that hopefully eliminates the concern of pensions just disappearing.

am I being naive?

I work for a United Way that runs an IDA program. The managers look long and hard at the participants, and the participants jump through a number of financial hoops, including a savings target. Participants drop out all the time. It really is a specialty program, a bit bigger than a pilot program, not really mass scaleable (sic). A bit like what the 401K account was thought to be.

Rexdart - I don't think *you* are being particularily naive, or evil for increasing your net worth. If anything, g*d love you, you probably won't be a problem.

But getting back to the 401K topic, if the average person puts in 4% in a 401K and *does nothing else*, even in a go-go vehicle like small cap stocks, that person is not going to generate miraculous returns. You'd better be saving big pots of money in a 401K, fund an IRA, or even *gasp* save money in taxable accounts.

For example, my grandpa never made more than $20,000/yr, yet he died leaving grandma $250,000. 10-12X/ highest salary pot of money. He never used a 401K.

And congratulations, Rexdart, on the fact that your company 401K plan pays your fees. That's great! Keep checking to make sure. Wink. A bene like that might well get expensive enough so that a non-so-small-fee HR consultant will surely suggest that it get cut. For efficiency, of course.

[VJW]

Re: Last Night: The Drawbacks of 401k Plans on PBS Frontline

I like the idea of matching funds over giveaways. Kind of a "you meet us halfway, we meet you halfway." This helps those who need it while still providing incentive for them to improve their productivity.

That’s exactly what the Clinton administration proposed in 1999. The policy involved workers earning less than $100,000 annually receiving a refundable tax credit deposited directly into Universal Savings Accounts, matching their contributions on a sliding scale, dependent upon income, giving extra help to those with the least ability to save. Even with people whose incomes were over $100,000 annually, if they had no other personal retirement savings or pensions, they would also be eligible.

As an example, if a couple earning $40,000 saved just $700 a year, after being matched by the government, a USA Account invested conservatively would have been worth more than a quarter of a million dollars after 40 years.

Of course, the Republicans opposed and blocked it. They proposed scrapping Social Security and giving it to Wall Street instead.

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[VJW]

Re: Last Night: The Drawbacks of 401k Plans on PBS Frontline

so what's the middle ground VJW? I don't want to start the same unsolvable argument we had with the HSAs all over again but "wealthy" and "rich/er" are such relative terms.

Not really.

Consider the tax cuts that were just signed into law Wednesday as a perfect example that “wealthy” is not all that “relative”.

If someone makes under 50K, the tax cut amounts to between $2 and $46, but if someone makes $1 million, the tax cut amounts to over $42,000. This is more of the same that has produced such disastrous results over the last five years. Insanity, as Albert Einstein once said, is doing the same thing over and over again but expecting different results.

Speaking of insanity, check out how completely out of touch the leadership of the Congressional Majority really is in regards to taxation. Speaker Dennis Hastert (R-IL), responding to criticism that their tax cuts are heavily skewed to the wealthy:

"Well, folks, if you earn $40,000 a year and have a family of two, you don't pay any taxes. So you probably, if you don't pay any taxes, you are not going to get a big tax cut."

So, anybody on the board that earns $40K or less want to share with us what Lucky Duckies you are ?

:]

I'm on board with you conceptually (about the health care too), I'm just not smart enough to know how to get there successfully.

Well, as someone famously said, it’s not rocket science. We know what works and what doesn’t work, and it’s all quite documentable. Check out the quite insightful essay titled “Supply Side vs Demand Side” I posted in the Personal Finance thread. It’s a good start in understanding the big picture.

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