The 401K program was the engine that fueled the growth of the 90's. Not everyone took a bath on their 401. I didn't, mine has grown at 4% the last two years. I also didn't ever get the double digit gains that were the norm for most. Big risk always precedes big gains. We shouldn't be scrapping the concept. Everything is cyclical. After the upcoming collapse of the government and our financial system there will be opportunity again.
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How Worthless is Your 401(k)?
Is it time for a radical rethink?
May 20, 2009 | Updated: 10:46 a.m. ET May 21, 2009
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Forget the formerly-funny 201(k) jokes. Nobody's laughing about the grim state of their retirement plans now. Employees who've watched their balances fall are getting bitter, and who can blame them? The once-vaunted employer-sponsored defined contribution plan may be failing them. Employers aren't much more upbeat. Some have even dropped their matching contributions in recent months.
"It's been a very difficult environment for everyone," says David Huntley, a Baltimore analyst whose company, 401k Source, monitors these plans. "Participants, employers and companies in the industry have all taken a hit."
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The really bad news? It could all get worse before it gets better. Most experts agree the market will recover and stock funds will regain value—eventually—and so they argue that 401(k) plans remain a powerful tool for retirement savings. But the days of assured growth are over. Employees need to be more familiar with the funds they are investing in through their plans, and more aware of the total fees they are being charged.
A quick recap: The 401(k) plan rose to prominence in the 1980s as a way for companies to offer their employees retirement benefits without taking on the liability of a fully-funded pension plan. Employees set aside their own pre-tax dollars and employers typically matched some percentage of those contributions. (Employers who had been paying roughly 7 percent of salaries to cover pension plans, began spending 3 percent in those matching contributions instead.) Employees chose where the money would get invested (off of a menu created by their employers.) For a while, especially during the dotcom boom of 1999, everyone was riding high.
Then came trouble. First there were problems with too many employees holding too much (bad) company stock in their 401(k) plans, a situation which came to a head during the Enron mess. Then came a slew of employee lawsuits in 2006, aimed at employers who were filling their investment menus with high-fee mutual funds that shifted the costs of managing the retirement programs away from employers and on to the workers. Now, with the stock and credit market crisis of the last year, a whole other round of 401(k) problems have come to the fore.
For starters, the median 401(k) investor lost 28.3 percent of their account's value in 2008, according to a study by Hewitt Associates - and that was before the Dow Jones Industrial Average dumped another 25 percent of its value in the first quarter of 2009. Some of that has come back, of course, but just at a time when workers might think they should be investing more in the beaten-down market, a number of big-name employers (General Motors, Boise Cascade, Frontier Airlines, Cincinnati Bell, etc.) suspended their matching contribution programs. Adding insult to injury, some employees who had been contributing to their own 401(k) plans found their money frozen in mutual funds they thought were super safe when the funds couldn't sell enough assets to cash out workers who wanted their money back.
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