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TMFMmbop (40.06)

Are they coming for our 401(k)s?

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February 04, 2010 – Comments (18)

Zerohedge is panicked that the Treasury wants to take away your 401(k) and instead give you an annuity following a lifetime of contributions. While the document they link to is somewhat more benign that Tyler suggests, it's more an dmore looking like the government wants to help us not make bad choices.

But we will make bad choices. That's Leviathan. Doesn't mean I don't want to make them.

18 Comments – Post Your Own

#1) On February 04, 2010 at 10:28 AM, Turfscape (42.48) wrote:

Some folks were panicked about it over here, too.

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#2) On February 04, 2010 at 10:37 AM, russiangambit (29.40) wrote:

401K is useless anyway but the annuity thing is just another scam like SSN. They ran out of money on SSN so they are looking for another cash cow.

Actually corporate pensions are somewhat like an annuity and it works OK. But I don't trust the government to not steal the money from that new program the way they did form SSN.

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#3) On February 04, 2010 at 10:41 AM, chk999 (99.97) wrote:

russiangambit - why is a 401(k) useless? They put in pre-tax money and many companies match some of your contribution. I trust my 401(k) a lot more than I trust a pension coming out of GM. 

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#4) On February 04, 2010 at 10:43 AM, outoffocus (23.49) wrote:

The sad part isn't so much that the government wants to help us make bad choices, its that the people want the government to help them not to make bad choices.  We've officially made the government our god.  If you don't believe in a deity then that is your life and I respect that.  But regardless of what you believe in, if you are putting most of your faith in the government to get you through life, then you've officially made the government your god. The thing is the government has no problem taking God's place.  The problem is, the government does not have the ability to truly take God's place in your life. So in the end you will end up worse off. 

We as a country need to take our country back.  But in order to do that we have to be willing to suffer the consequences of our bad decisions and seek PROPER wisdom to rectify the situations. This whole mentality was born out of a unwilling to suffer consequences of bad decisions. But we are going to suffer them one way or the other.  Might as well do it the right way. 

This is a large reason why I've lost hope in our current political system.  Its not so much that the political system is broken as it is that people fail to realize we are the people who broke it.  I'm tired of being the tiny micro voice of reason in a sea of loud foolishness. I realize that until this country wakes up, I'll just have to worry about living my own life.

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#5) On February 04, 2010 at 11:18 AM, russiangambit (29.40) wrote:

#3 - 401K is useless because it is very inflexible, you can use IRA for the same. Why not use IRA instead of 401Ks and increase contribution limits? The choice are made by HR usually who ahve no clue about finance to begin with. But even bigger issue is that 90% of 401K participants have nop knowledge or desire to manage money.

I've had several 401Ks and their only saving grace is that I was able to convert them into IRA when I switched jobs.

Also, the company match - who says a company can't match into your IRA or put the match into annuity as they used to be doing beforen 401Ks came along? Just make this annuity belong to an individual, so that it doesn't go under when the company goes under.

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#6) On February 04, 2010 at 11:57 AM, Turfscape (42.48) wrote:

russiangambit wrote:
"who says a company can't match into your IRA"

The government.

"The choice are made by HR usually who ahve no clue about finance to begin with."

I choose my 401k investments directly through Fidelity. The only thing I don't have choice over is the company match, which goes into company stock until I am fully vested...at which point I can move it to whatever other investment I want.

"But even bigger issue is that 90% of 401K participants have nop knowledge or desire to manage money"

So...we should take away the easy option of 401k participation and force them to manage their own retirement account, despite their inability and unwillingness to do so? Sounds a bit like teaching everyone to swim by throwing them into the middle of the ocean. The fact is, some folks just shouldn't swim...

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#7) On February 04, 2010 at 12:02 PM, Dobbes (< 20) wrote:

The problem I've run into with a lot of 401ks is the limited choice of funds available.  If it wasn't for the match, I wouldn't be inclined to use it at all.  There's also been shady fee schedules and kickbacks from fundhouses eager to increase assets under management.

People really need to stop reading Zerohedge.  Tyler needs Xanax.  His articles are based in fact with the same depth that The Goonies was based on a true story.  

 

 

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#8) On February 04, 2010 at 12:13 PM, AvianFlu (21.31) wrote:

My 401K is entirely made up of non-US ETFs and CEF, the gold and silver bullion play.

So it is not mandatory to invest your 401K in plain vanilla mutual funds.

If I had known the federal government was planning on controlling my future retirement funds I would never have participated in a 401K program. My success with money has been, shall we say, somewhat better than the federal governments, if you catch my drift.

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#9) On February 04, 2010 at 12:34 PM, Turfscape (42.48) wrote:

AvianFlu wrote:
"If I had known the federal government was planning on controlling my future retirement fund..."

Yeah, I wouldn't worry to much here. There's a lot less going on than the radical conspiracy theorists would have us believe.

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#10) On February 04, 2010 at 1:13 PM, TMFHelical (99.12) wrote:

This is how the US Gov gets its money back on AIG.  : )

 

Honestly, and annuity option as a default for those who don't contribute or manage their contributions isn't the worst idea I've heard.  Those who are more involved may opt out.

TMFHelical

Home Coverage Fool

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#11) On February 04, 2010 at 1:23 PM, motleyanimal (51.77) wrote:

Load up my shotgun, Ma. Them danged revenuers are sniffin' around the 401K.

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#12) On February 04, 2010 at 2:28 PM, russiangambit (29.40) wrote:

> russiangambit wrote:
"who says a company can't match into your IRA"

The government.

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I am proposing the govrenment changes the rules for IRA, including the limit , the restrictions by income and let employees contribute the match into IRA. Then 401K is not needed at all and we save the money on liquidating this golden goose of the financial services.

"The choice are made by HR usually who ahve no clue about finance to begin with."

I choose my 401k investments directly through Fidelity. The only thing I don't have choice over is the company match, which goes into company stock until I am fully vested...at which point I can move it to whatever other investment I want.

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In a typical big company you have a predefined selection of 20 or so choices - hald stock mutual funds and half bond mutual funds. Yeah, after that you can pick 5 out of 20 bad choices, great. If youa re a small business and you are the owner than you ahve all the control, bit otherwise you are stuck with whatever is slected for you.

"But even bigger issue is that 90% of 401K participants have nop knowledge or desire to manage money"

So...we should take away the easy option of 401k participation and force them to manage their own retirement account, despite their inability and unwillingness to do so? Sounds a bit like teaching everyone to swim by throwing them into the middle of the ocean. The fact is, some folks just shouldn't swim...

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Let them use IRA as I said if they want to take extra risk  but also there needs to be some low risk option fopr them. And bond funds like in the current 401K aint it. Bond funds are actually even more risky than individual bonds, especially now when interest rates can only go up. But people see names like "stable" or "balanced" on the bond/ equity mutual funds mixes and they think it is low risk. Not.

Most people only use 401K because of the company match which replaced the pensions. But they don't have the knowledge required to manage these 401K accounts. And even with the knowledge because choices are so limitied, it is basically index investing which is built on premise of 7% return which is not going to happen. And what are people going to retire on? The country will go broke because old people will ahve to be supported by the government because they mismanged their 401Ks , it is a real problem down the road.

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#13) On February 04, 2010 at 3:04 PM, Turfscape (42.48) wrote:

russiangambit wrote:
"Then 401K is not needed at all and we save the money on liquidating this golden goose of the financial services."

And who facilitates the IRAs? My guess?...financial service companies. See, most people (a vast majority) don't have the capability to open and manage their own IRA. This may be difficult for you to understand, because you're active on investment forums and prefer to manage your own finances, but most people are VERY intimidated by these sorts of things. And they should be, to a degree. It's easy to make mistakes that will financially ruin a person. That's why we have a financial services industry. Just because you take away public transportation doesn't mean that everyone suddenly will know how to drive and be able to get a car! Just because you kill off the 401k doesn't mean everyone will be able to effectively outpace an index fund in an IRA they manage themselves.

"In a typical big company you have a predefined selection of 20 or so choices - hald stock mutual funds and half bond mutual funds. Yeah, after that you can pick 5 out of 20 bad choices, great. If youa re a small business and you are the owner than you ahve all the control, bit otherwise you are stuck with whatever is slected for you."

I'm at a big company. I don't have that problem. I've worked at small companies, too. Didn't have that problem there either (SIMPLE Plan, not truly a 401k). Sounds like an issue with some 401k providers to me, not a rule of 401k plans. So, the issue is not the 401k, but rather how individual companies manage their 401k plans.

"But people see names like "stable" or "balanced" on the bond/ equity mutual funds mixes and they think it is low risk."

How does this problem go away if people are running their own IRAs? They will still be presented with choices, most of which will be funds that are identified by their strategy. People aren't suddenly going to be smart about finding value in individual stocks and commodoties. And people won't suddenly have more time to devote to following those stocks and/or researching new ones. People will see a name like GE and assume it's low risk. People will see a name like Harley-Davidson and think it's a sure winner. How is that better than choosing Monetarity's** Stable Value Fund?

"Most people only use 401K because of the company match which replaced the pensions. But they don't have the knowledge required to manage these 401K accounts. And even with the knowledge because choices are so limitied, it is basically index investing which is built on premise of 7% return which is not going to happen. And what are people going to retire on? The country will go broke because old people will ahve to be supported by the government because they mismanged their 401Ks , it is a real problem down the road."

But switching to IRAs doesn't solve ANY of that. You seem to assume that if we just take away 401k and give everyone an IRA they'll somehow be supersmart about their finances and will spend all their free time researching and actively managing their retirement funds. All you will REALLY be doing is changing the name of their investment vehicle from 401k to IRA. AND because it will no longer be a company sponsored, participatory benefit, they will lose access to the financial representatives from the firms that facilitate the 401k! It may not be of any help to you, as you have an interest in investing, but most people do not have that interest and never will. So having those free seminars and the ability to schedule a 1 hour one-on-one session with a Fidelity or Ameriprise rep is VERY valuable to many people. They can get basic questions answered. They can see a rough outline for reaching certain financial goals. They can ask what an Emerging Markets fund is.

You're talking about writing new legislation to allow employer matches to IRAs, taking away the 401k, etc. It seems to me that you have one single issue with 401k plans, and that's lack of options in the plan you currently have. Why not just solve THAT aspect instead of burning down the whole house because you don't like the color of the kitchen?

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#14) On February 04, 2010 at 3:20 PM, russiangambit (29.40) wrote:

#13 - people intimidated by IRAs have no business investing in 401K either in my opinion.They should be in CDs or other fixed income.I amean, how did people save before all these 401Ks came along? And that is my main point - I worry about all these 401Ks going bust and us having to support a whole generation of people with busted 401Ks.

I worked at several fortune 500 companies and everywhere the choices where limitied to 20, 30 max mututal funds. So, no it is not an isolated problem.

Furthermore, people managing 401K have less financial knowledge than I do yet they somehow feel qualified to manage 401K for a whole company? All they do is talk to big financial houses like Fidelity or Vanguard and whoever does a better sale job and gives them more kick backs, that is who they pick. I want to be able to chose my investments myself.

Plus, the company has to maintain the said 401K plan. This is an expense. Why should it if  IRA offers pretty much the same services only better? 

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#15) On February 04, 2010 at 3:58 PM, Turfscape (42.48) wrote:

russiangambit wrote:
"Why should it if  IRA offers pretty much the same services only better? "

You've managed to avoid my questions all together. How does moving these same people from a company-sponsored 401k to an IRA help anything? You've pointed out what YOU don't like about YOUR 401k (lack of options). But that's YOUR issue. That's not a fault with 401k plans.

"I want to be able to chose my investments myself."

Right...that's the right move FOR YOU. That's not necessarily the right move for every person in America. It sounds to me like you should have a discussion with your Human Resources department, as your issue is with them...not with the financial regulations surrounding 401k plans.

"Furthermore, people managing 401K have less financial knowledge than I do yet they somehow feel qualified to manage 401K for a whole company?"

Like I stated, you are active in investment forums, comfortable with trading, up on researching stocks and funds for yourself. Most people aren't. And even the most rookie of registered investment advisers understands the concepts of savings, dollar-cost averaging, dividend reinvestment, risk tolerance, and other basics of investing that will hang up an average citizen who doesn't care to actively manage their own financial investments.

Also, that's a pretty broad brush to paint with, there. There are a LOT of talented financial professionals out there who provide excellent service and sound advice.

Like I said before, you're trying to burn down the house because you don't like the color of the kitchen.

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#16) On February 04, 2010 at 4:41 PM, russiangambit (29.40) wrote:

Turfscape, it is you who are not hearing me. My dislike of 401K is not for my own benefit. 401K is a little something I do on a side because of the employee match. It doesn't affect my future one way or the other.

I dislike 401K because it promises it something it cannot deliver.It gives people a false sense of security. Most people expect that they put money in there , do nothing and the money magically grows at 7-10% and voila they can retire comfortably. It is not going to happen. And who is going to be stuck supporting all these people with busted 401Ks ? Those of us who understand what they are doing .

I am proposing how we could improve the 401K situation. You don't like it, ok. It still doesn't change the fact that 10-20 years from now we'll get a whole bunch of old and disillusioned people with no money to retire on.

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#17) On February 04, 2010 at 4:57 PM, Turfscape (42.48) wrote:

russiangambit wrote:
"Turfscape, it is you who are not hearing me."..."Most people expect that they put money in there , do nothing and the money magically grows at 7-10% and voila they can retire comfortably. It is not going to happen."

You are right. I am not hearing you. Can you tell me who these people are? And can you tell me how replacing their 401k with an IRA will solve that problem?

"I am proposing how we could improve the 401K situation."

No, you're proposing replacing 401k plans with less restricted IRAs. You have yet to explain how that solves anything.

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#18) On February 04, 2010 at 6:23 PM, russiangambit (29.40) wrote:

> No, you're proposing replacing 401k plans with less restricted IRAs. You have yet to explain how that solves anything.

It doesn't. Neither 401K or IRA solves anything. They are not enough and never were. But IRA is better than 401K. Annuity is a good supplemental option. More realistic in any case.

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