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October 17, 2008

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I cannot believe what I am reading. It would be administered by the same people running social security (and we all know how well that is working out). It then makes you invest in government bonds paying 3%. We can then say good-bye to our company match. One more step in the government taking control of all of our dollars.

I take serious issue with this, especially this quote:

"At that hearing, the director of the Congressional Budget Office, Peter Orszag, testified that some $2 trillion in retirement savings has been lost over the past 15 months."

It has not been "lost", because I seriously doubt that much has been sold. There may have been a $2 trillion decline, but not a loss. There is a huge difference in the two terms.

What are they thinking? If they truly think that this will help fuel the economy they are absolutely nuts

Daddy, make the bad socialists stop!

Kevin M. - exactly. And now because of the hair-brained idea of some b-ch (sorry I am too angry) we may be forced to sell it and lock in the losses.

Never worry. Instead of company match we'll get a whopping $600 and be FORCED to put 5% into a fund managed by the Social Security administration. Now they are certainly better equipped to do it than we are... . Right, and the pigs an fly. Oh, and we are supposed to trust them with our money.

I wonder if we all should start writing to our representatives in congress preemptively? Also, if somebody has contact info for this woman, maybe we should all write to her so that she has an idea of what everyone whom she is professing to protect thinks about her?

I am actually speechless

Don't you people get it? We're *supposed* to rely on the government for *everything*! We're not supposed to be independent investors using our own money to fund our own retirement. That's the government's job--and it's the government's money, not yours, by the way!

This seems a bit reckless, not to mention scarry.

If they take down 401(k)s, I bet they go after Roth IRAs next...this just pisses me off to no end...

I mentioned earlier that reps were making speeches about this. And yet americans will keep sending them back into office. We get the leaders we deserve, I'm afraid...

Are they planning to redistribute some of the accumulated wealth too?

Well, we will soon have a Democratic House, Senate, and President. More good stuff like this is coming. Get ready.

They have a point, and it is not a bad idea. For most of you... you probably have an income that is rising and are more invested in Roth vehicles anyways.

http://crr.bc.edu/images/stories/Briefs/ib_52.pdf?phpMyAdmin=43ac483c4de9t51d9eb41

"The bottom line is that over the period 1988-2004 defined benefit plans outperformed 401(k) plans by one percentage point. This outcome occurred despite the fact that 401(k) plans held a higher portion of their assets in equities during the bull market of the 1990s. Part of the explanation may rest with higher fees, which are deducted before returns are reported to participants. But the one percentage point shortfall understates the investment problem in 401(k) plans, since an aggregate number does not reflect the fact that more than half of participants in 401(k) plans do not follow the prudent investment strategy of diversifying their holdings. "

But, hey, whatever lets you yell the 1960s-1980s propagandha republican go-to catch phrase that democrats are socialist.

Anom,

Of course that is totally ignoring the fact that 401K investments are tax deferred versus after tax contributions. Secondly, that does not take into account company match. Third, companies have been more diligent over the last few years on watching the fees as employees have put on pressure. Fourth, the government rate of 3% is an insult. Fifth, if people do not diversify their holdings, that is their fault (but doesn't entitle you or anyone else, including the government) to tell them what to do with THEIR money.

This is just another step in the government acting as if they control all of the money we earn and will let us know how we can spend it, give it back in taxes, save it, etc. The elected officials need to understand that it is not their money, but belongs to the individual taxpayes.

Hey anom......better run.....Karl Marx is calling you.

Anom, you are comparing apples and oranges. The issue is not whether defined benefit is better than 401K or not. They are not proposing to give you back the generous employer-sponsored defined benefit plans of the past. These plans were great, but they are gone now.

In defined benefit plans the employer paid you specific fixed benefit in retirement. The amount of benefit was typically determined by how many years you worked (sometimes also what age you were during each 5-year period you worked) and your salary during the last several years of your career. You didn't put your money into defined benefit plans.

What they are proposing is that we'll HAVE TO pay 5% to the government so that the government can put it into 3%+inflation (that they calculate) rate bonds. In return we'll get $600 a year - much much less than employer match on even a small salary. And we are supposed to trust the government to keep its hands off our money. Then, you will not see this money until you are of social security age; and then you'll get it as an annuity.

With 401K, you are a) can put much more money away than 5% they propose b) get company match which is a lot bigger than their $6000 and c) you can get your money at 59; and you can take as much or as little of it as you want or need.

What if someone is sick at 66 with cancer and needs the money? With 401K, one can take as much of the money as one needs and pay for potentially life-saving drugs. Or simply enjoy whatever little time one has left. With their plan, there is no choice.

What they do is essentially a) reducing the amount of money you put in b) replacing company match with $600 c) putting it all in bonds taking the choice away from you d) dictate to you how and when you can get the money. Now tell me, how this plan would result in more money in retirement than putting all of your 401K into government bonds if you so desire?

You think inflation-protected bonds offer higher value - why don't you keep all of your 401K in the inflation-protected bonds? Want defined benefits? Convert it into annuity at any age over 59. With 401K you have a choice. You can take it as you want, you can retire late or you can retire early.

Sure, I'd love to have my company's very first defined benefit plan under which I'd have received 40% of my salary over my last 5 years of service, but this doesn't exist anymore and this is not what they propose.

"Sure, I'd love to have my company's very first defined benefit plan under which I'd have received 40% of my salary over my last 5 years of service, but this doesn't exist anymore and this is not what they propose. "
Correction - not 40%, it's a typo. I think it was more like 50-60%.

It's irrelevant though because again, their proposed plan is not at all the same as defined benefit plans of the past.

@ someonegettingmoreupset

You are an idiot, this has nothing to do with Karl Marx. Go suck on W's teet.


@ kitty

Good points, I will look at them further on Monday when I have some available time @ work, about to head out and jump start the bar economy (which is weird, you can see a noticeable difference)

However, at first glance, I understand both you and the previous posters points. But when all these people FAIL (in caps for a reason) at investing for their retirement... and the government bails them out you guys will be crying about Marx all over again (lol). So damned if you do, damned if you don't.

I still do not get why you guys are crying. If this proposal passed you would still have ROTH's which are tax exempt growth.. and for anyone who expects their income to rise (I expect most of us?)... this is the optimal investment vehicle anyways!

Things are taking a turn for the surreal. I don't mean to be melodramatic, but this is almost a type of financial euthanasia. They've destroyed social security so that by 2030 there will be 1 person on it with 2 people supporting it. Now they will take $80,000,000,000 back out of people who just want to save for retirement?

Good gosh. I wish I knew what to say. I really do.


What's nutty about whole thing is that it essentially is just another version of social security, and that's what makes it most objectionable to me, not the tax consequences.

Specifically, if such withdrawals are mandatory, where is the freedom to choose? I can live without a 401(k), but if the government compels me to put my money where they want me to put it, then I've lost much of the freedom that makes (made?) this country so great.

Some people make too much income to qualify to contribute to a Roth. Trust me on this.


I'll also add that the government needs to get out of the retirement business. Who cares if the workers don't invest the money the way they should (according to some bureaucrats)? Isn't that what freedom is about? Unfortunately, we are much closer to Comrade Obama's socialist utopia
than we are to my Libertarian utopia.


Anom, you are a complete and total ass. A typical Osama supporter no doubt and an idiot too! Blow this.....

FMF, what is going on? The story you linked to is poorly researched thinly veiled political trash! There is no evidence that that proposal is going to happen, and the way that article is written it sounds like the main source is from the professor who's idea it is in the first place!

No source. No story. Please be a responsible blogger.

Some real news:
Candidates Present 401(k) and Small-Business Plans
http://www.nytimes.com/2008/10/11/us/politics/11retire.html?ref=us

McCain Offers New Tax Cuts, Incentives:
http://www.thestreet.com/story/10442395/1/mccain-offers-new-tax-cuts-incentives.html?puc=googlefi&cm_ven=GOOGLEFI&cm_cat=FREE&cm_ite=NA

Obama calls for tax free 401(k) withdrawals
http://globalpensions.com/showPage.html?page=gp_display_news&tempPageId=820200

Chris --

Are you claiming that the meeting/hearings they're discussing never happened? Because if you are, you are mistaken based on all the sources I can see on the web.

If you're claiming the piece is a lie, I think you're also wrong. The meetings happened and Congress is considering this idea.

If you simply want to cast doubt on the piece because you don't like the facts portrayed, then I'd say you're the one who's not being responsible.

Chris,

McDermott heads up a very powerful committee. If he is giving this consideration, there is reason to worry.

Found a better write up in WaPo:
http://www.washingtonpost.com/wp-dyn/content/article/2008/10/11/AR2008101100177_2.html?hpid=topnews&sid=ST2008101102372&s_pos=

But you are right, it does sound like there is momentum for a change in 401(k) law. I guess we will have to wait.

Oh, FMF. If you read the article carefully, you see that (a) there were some hearings regarding the enormous amount of 401(k) wealth that has evaporated recently (shocker!!!) and (b) some academic presented a plan at one of the hearings, which neither of the chairs endorsed, though they were polite about it.

Now, I know you are smart enough to read the article attentively and figure that out. It's really a shame that you then present the article in such a way that it encourages your less attentive readers to go into convulsions about bin Laden and socialists under the bed.

I think there probably will be changes in 401(k) law as a result of the present crisis. Clearly our present retirement system is not an ideal one, and unless people like the idea of seeing poverty visited on the old in the way it was before the Great Depression, some changes are going to have to be made. But, honestly, though we obviously differ radically in our politics, I expected something a little more thoughtful from you.

Osama supporter? Typical right wing nut.

"ANYONE WHO DISAGREES WID ME SUPPORTS DA OSAMA!#[email protected][email protected]%?" oh "AND DEY TOOK OUR JOBSSSSS"

Seriously, is that the only fall back you have?

Sarah,

Are you really that stupid? Hearings are where these ideas begin. If you don't sit up and say something when ideas are thrown around, then you only get what is coming to you. The current downturn is being used as a tool to open the debate. What makes this more serious is when the House Way and Means Chairman even starts to consider this.

Most of us are not interested in having the government continue to step in at every point of our lives.

If you want a socialist government, you have that right to voice such. The rest of us have the right to disagree. That is what freedom is about.

Sarah --

You said:

"Unless people like the idea of seeing poverty visited on the old in the way it was before the Great Depression, some changes are going to have to be made."

And that's thoughtful? Do you really think that 401ks are putting us into something similar to the Depression? Sounds like an alarmist reaction from someone with an agenda to me.

I don't really have any political leanings on this blog -- I have economic leanings. I prefer that the government do less, spend less, be smaller, tax less, and control less. I'd rather have the freedom to make it or not on my own without their constant control and grab for more influence on my life (which, by the way, are the principles this country was founded on). To that end, I'm willing to support any candidate's economic policies -- no matter which party he/she is from.

If you have a problem with those thoughts, then, yes, you probably will have a problem with much of what I say. And if I'm simply not "thoughtful" enough to you for defending my principles, then it's likely that most of the posts on this blog won't be "thoughtful" enough for you either.

It seems the ideologies of this blog are:

Republican - Being of the opinion that corporate welfare is completely justified, as long as no tax dollars are used to support the working class

"Socialist" - Being of the opinion that money normally used to fund corporate welfare should be used instead to support the working class

Where in the world do you see on this site comments about supporting corporate welfare. Instead, most on this site are more directed towards personal responsibility versus reliance on the government to solve all of our problems.

The common themes here are on ways that we can save money by reducing expenses, better ways to invest those savings, etc.

One point I'll agree with is the 401K approach is rather screwed up. Far too many 401K plans are larded up with crappy, high-cost funds that are used to subsidize the cost of administering the plan, so the package can be sold to - typically small - businesses. Small businesses, in particular, often lack the expertise to evaluate 401K plans and often figure that just having one is good enough. I've had to fight to get 401K plans changed at two startups I've worked at.

But the proposal discussed in the article is definitely throwing out the baby with the bathwater.

If I were God-Emperor, I'd have 401Ks be self-directed brokerage accounts just like IRAs currently are (as are SE401Ks) - or at least have the option to handle it this way. This way, you could park your 401K in gold if you wanted.

Also, if we will stick with the current arrangement, I'd require that all plans include a set of cheap stock index funds (S&P, Wilshire 5000, world index, Russell 2K) and a cheap lifecycle fund.

Stop bashing poor Anom. Socialists are people too ;-)

If I may correct the definition given of what is a socialist:

A socialist is someone who cuts the branch he is sitting on because it is uncomfortable; falls on his head, climbs the tree and does it again ;-)

To the anonymous person who didn't even list a name at all:

...corporate welfare is actually a violation of laissez faire capitalism as well, but nice try. And, uh, no one said anything about supporting corporate welfare, so not-so-nice-try. ;-)

Seriously, just stop and try to think it through before your post. Oh, and acting like the people who own the entire /industries/ aren't part of the working class is simply absurd. CEO > Janitor, hence the difference in pay. Sorry, but that's how reality works. There's a reason most economists support free markets.

This type of legislation kills us that actually DO save. Please let them know how you feel. Whether it's likely or not, I don't intend to sit back and let it happen without letting them know who they're hurting:

[email protected]

[email protected]

Teresa Ghilarducci
Department of Economics, Room 1124A
The New School for Social Research
6 East 16th Street
New York, NY 10003

FMF, I'm very surprised at how biased you seem to be. Why don't you talk about the nasty deregulation that got us into this mess in the first place? Yes markets have cycles, but they don't need to be this erratic or this strong. I'm not a socialist, as a matter of fact I'm a US Marine war vet, and I can tell you that I've been republican most of my life. However, don't you believe changes are needed? I'm not saying I agree with what these fools are trying to do with the 401k, but let's not forget it was republicans that have run our country to the ground. Also, running away one of your readers just cause they don't agree is sad. Not only have you displayed your closed minded approach to life, but you have shown that you really are an a$$ hole. Can we agree to disagree? Don't run me off man. Oh yeah, don't forget that the most prosperous time in US History was during the Clinton administration. You can't admit that? Be open minded dude.

ignorance_intolerant,

Bill Clinton just happened to be in office during the tech boom. Take a look at what was happening during his last year in office. The economy was starting to go down. I don't think he anything to do with either, as I don't think the government does much to really help build an economy. Instead, we just hope they don't screw it up.


Neither republicans nor democrats did anything about what was going on. Barney Frank is on record saying that Freddie and Fannie was fine and we had to provide loans to the poor. Republicans went along with them. They are all to blame.


I'm unclear on the definition of "corporate welfare." If it means allowing corporations to keep their own profits, in what way is that welfare? Defining welfare as allowing one to keep his own money seems Orwellian at the least.

I've been lurking around a bit, but I figured I'd through my hat into the ring.

I have yet to see anyone support true corporate welfare. Tax breaks? Sure. Same as they have for anyone else. But true entitlements? Nope...it hasn't happened. You know why? Because the vast majority of people seem to want a more hands off government, and if you oppose entitlements for the poor, you need to for the other end of the scale as well.

Of course, anyone can come on as anonymous and say whatever they want to say ;)

@Anom: "I still do not get why you guys are crying. If this proposal passed you would still have ROTH's which are tax exempt growth.. and for anyone who expects their income to rise (I expect most of us?)... this is the optimal investment vehicle anyways!"

Several reasons:
a) Company match: If they make 401K contributions taxable, what makes you think company match won't be taxable too (at best) or disappears entirely (at worst)? b) Ability to choose between 401K and Roth 401K. What is optimal depends on your income and plans c) Uncertainty over the fate of Roth 401K: If they change 401K rules, what makes you think they'll keep Roth 401K? As to Roth IRA - it is not a replacement for 401K as you have both now. d) Bad timing. This is the worst time to make changes. The market may well be at the bottom now or close to the bottom. Change may cause a lot of people to withdraw funds now which would be terrible for the stock market and the economy.

@Foobarista - you have a point. I am lucky in that my 401K has a lot of very low cost funds as well as the ability to choose mutual funds as well. I'd have liked to have more flexibility exactly as you suggested.

@(no name) "Neither republicans nor democrats did anything about what was going on. ... They are all to blame.
I'd second that. There was a number of government decisions that caused this mess - both republican and democrats. In addition to the push for "affordable" housing, there was removal of regulations that were there to put breaks on exactly the type of mess we have. The most dangerous of deregulation moves was SEC's allowing high level of leveraging for investment banks to allow them to buy mortgage-backed securities. He also failed to do any kind of checking letting Wall Street essentially police itself.

Without this over-leveraging the crisis would've been much much smaller. Bush was the one who nominated Cox to be SEC chairman, and Cox made this idiotic decision of exempting mortgage-backed securities from leveraging limits. He made some "smaller" stupidities like elimination of uptick rule on short sales, but allowing investment banks like Lehman's to be leveraged 40 to 1 is what caused them to fail. Keep in mind that 3 out of 5 investment banks that asked SEC to allow this over-leveraging are out of business...

CF - you took the words right out of my mouth. I send my emails to these people yesterday. I think everyone should do the same.
Why protest after they introduced the bill, when we can protest before?

Ignorance --

1. Yes, I'm biased. I hate my liberty and freedom being stolen. And personally, I don't want the government taking away 401ks to manage my savings for me. So if that makes me biased, I'm guilty as charged.

2. Talking about what got us in this mess really won't help things (versus what we can do about it). But it will be fun (more heated conversations!) and I have a post coming up about it in the next week or so.

3. I'm sure changes do need to be made, but I don't think they do in 401ks (which is what this post is about.) Do you?

4. "I'm not saying I agree with what these fools are trying to do with the 401k..." Good, we agree on something -- which was the main point of this post -- nothing else.

5. "...but let's not forget it was republicans that have run our country to the ground." Ok, assuming you're right, does that make this crazy 401k idea even better? No. Ok, so what't your point then? You're bringing up an entirely new issue that's straying off topic.

6. Who am I running away? Sarah? I doubt it. She's a lot tougher than that.

7. Careful with your language or you'll get banned from commenting. If you can't be civil, you're out.

8. "Can we agree to disagree?" Of course. As long as the conversation is on topic and civil, I enjoy the debate.

9. "Be open minded dude." I know many people that are so open minded that their brain has fallen out. I'm open to new ideas, but when I see a new suggestion that I think is completely off base (like the 401k proposal that this post is about), I'm going to say so. I'm not going to just "go with the flow" so I can be called "open minded."

FMF - you can not read it as if their ideas are the EXACT way it will turn out... so forget the 3% for now and look at this as a conversation starter

401ks need revamping (unless you want to have our tax dollars care for another generation of people who used their 401ks for ST goals rather than LT goals). Can you sit here and honestly say that you do not know a bunch of people who throw their 401k money directly at whatever is the hot investment at the time? And then when it crashes... what then? Do we let a generation of retirees sleep on the street because they bought into the hype that anyone can play the stock market?

I think a lot of people in this forum suffer from intelligence.

I, like I would gather 95% of you reading this blog, am good at managing my retirement accounts. I make sure to balance the ROI and the risk to what I can afford to LOSE in the worst case scenario.

However, because so many of you know how to do this it seems you forget that not everyone can. And there are MANY people failing at investing their hard earned dollars into the stock market.

So tell me what you all plan to do to alleviate the problem? Mandatory personal finance classes in high school? Lets discuss it. Managed retirement accounts? Lets discuss it. Do nothing? This is not worth discussing to me (and I hope not FMF), because by doing so you are admitting that you have no compassion for people who are not lucky enough to be in our situations.

Money should be used for good FMF, don't forget that.

Anom,

FMF has brought up the topic of personal finance education. Also, what ever happened to personal responsbility. Why does the answer always seem to be that the government should talke something over.

Oh yeah, don't forget that the most prosperous time in US History was during the Clinton administration.

I beg to differ, I believe Reagan did better. AND it was Klinton that signed the bill that allowed controls on lending to be relaxed. Klinton was nothing more than an empty suit, same as Osama. Won't you liberals EVER figure out who is actually blowing sunshine up you butts?

This discussion is very worthwhile, and I will be doing more research about this after reading this thread.

Many people seem to be upset about the government interfering with the 401k savings/retirement plan.

Some seem to think that there is a need for change, and others don't, but it seems that the possibility of losing the tax benefit for a 401k contribution is most troubling to most posters.

What is somewhat ironic is that the 401k plan in its current state is tantamount to government interference in personal/retirement savings. We have taken this program for granted for so long, that essentially we feel we are ENTITLED to a tax break for putting money away for retirement.

Many people who seem or openly admit to be "republicans" appear to be the most upset, which is also somewhat ironic, because historically the GOP has been the party of smaller, hands-off government. But some "republican" commenters here seem to believe that THIS government program is one worth keeping!

I do feel very sad for those people who have lost a significant portion of their retirement dollars. I can only imagine what kind of hardship that could cause.

I personally don't feel that the government should put the responsibility of securing every American's retirement on its shoulders. The government has a proven track record (see Social Security and Medicare/Medicaid) and I don't think they will do any better in the 401k arena...

If a couple of you could make clarifications I would greatly appreciate it, and I'm sure the rest of the FMF readers would too...

@anom-
WHY do 401k's need to be changed?

@Todd-
If one company makes a billion dollars and pays no taxes and (forgive me) Joe the Plumber makes $250,000 and pays $75,000 in taxes, would you say that the system is unfair?

@FMF-
You say you hate your liberty and freedom being stolen, but isn't being coerced (with a tax break) to put your money into a 401k taking away your freedom to invest your money without government intervention? The government gave us the 401k, so why couldn't/shouldn't they take them away? Is saving for your retirement good for you and me both? (I think Yes) So why should we require the government to "help us out" with a tax break to do something that we SHOULD do anyway?

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