Thread: The 401K Hoax

Lawmakers consider new rules for 401(k) fees

Companies would have to provide clearer, more complete information

Updated: 10:58 a.m. PT March 6, 2007

WASHINGTON - A key House lawmaker said Tuesday that Congress needs to consider making companies that manage 401(k) plans give clearer and more complete information on fees, which can drain thousands of dollars from a worker’s retirement savings.
“We have to ask whether all these fees are necessary and we have to examine whether they are undermining workers’ retirement security,” Rep. George Miller, D-Calif., chairman of the House Education and Labor Committee, said at a hearing by the panel.
Millions of Americans save diligently for their retirement, only to discover later that “there’s a lot of people who are putting their hands into that money,” Miller said.

Current law does not explicitly require disclosure to investors of comprehensive information on fees connected with 401(k) plans, the employer-sponsored schemes under which workers make tax-deferred contributions from their salaries.
Rep. Howard “Buck” McKeon of California, the committee’s senior Republican, warned at the hearing against congressional action that could have unintended consequences, heaping new requirements for 401(k) plan managers atop current ones and overwhelming investors with data.

Nearly 50 million U.S. workers have invested some $2.5 trillion in 401(k) plans, the premier vehicle for retirement savings in this country. The plans have taken on added importance because traditional employer-paid pensions, with a guaranteed monthly benefit, have declined among companies.

About 80 percent of investors in 401(k) plans do not know how much fees are eroding their account balances, according to a report issued in November by congressional investigators.

....The math is fairly simple: Consider a 45-year-old person who leaves $20,000 in a 401(k) account until retirement. If the average net return is 6.5 percent — a 7 percent investment return minus a 0.5 percent charge for fees — the account will grow to $70,500 at retirement.If the fees are 1.5 percent, the total falls to $58,400 at retirement.

Entire & Link: New 401(k) plans considered - Personal Finance - MSNBC.com

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The 401K is an experiment, and it's failing badly.


Discuss.

Here's an article:

Regulators, prosecutors, Congress and class-action lawyers are all looking into 401(k) fees. All that attention is bringing two aspects of 401(k) fees to light. The first is that investors, employers and regulators may not understand all the fees they're paying and lack easy access to all the information to evaluate them -- the conclusion of a government report in November. The second is that embedded in some of those fees are questionable business practices and conflicts of interest that can seriously hurt 401(k) participants.


At the center of the controversy is a practice known as revenue sharing. That's when an investment company shares some of what it earns with plan administrators, record keepers and other service providers. Some forms of revenue sharing bear an unsettling similarity to kickbacks. What would you think of a 401(k) consultant who steered your plan toward a fund that paid the consultant to make the recommendation? The Securities and Exchange Commission expressed concerns about that in 2005.

Entire: Shedding Light on 401(k) Fees - Kiplinger.com

No, British, but, I worked for US companies based in Houston.
I haven't seen any fees in any of the 401k schemes I've been in.

Originally Posted by Sir Burr

No, British, but, I worked for US companies based in Houston.
I haven't seen any fees in any of the 401k schemes I've been in.

You won't see the fees, SB.

This is the problem. But Congress is going to hold hearings on this in November.

Originally Posted by Sir Burr

No, British, but, I worked for US companies based in Houston.
I haven't seen any fees in any of the 401k schemes I've been in.

That's correct. The sponsoring company pays the fees.
Most oilfield contractors are with top tier firms such as Fidelity etc where the fees are typically low.

Originally Posted by Boon Mee

Originally Posted by Sir Burr

No, British, but, I worked for US companies based in Houston.
I haven't seen any fees in any of the 401k schemes I've been in.

That's correct. The sponsoring company pays the fees.
Most oilfield contractors are with top tier firms such as Fidelity etc where the fees are typically low.

That's what I thought. When I sell shares in one fund and buy into another, not a single dollar gets taken out. If there is a fee, it's always been met by the employer.

Guess there must be a few 401k schemes that don't do this.

Sir Burr,

The expense ratios you are likely paying, you don't really know about. Focus on everything from the 12b-1 and other expense ratios.

Many funds say they go up an average of say, 10% per year, annualized return. But your fund actually only goes up say, 7.5%.

So, where the other 2.5% go?

In someone else's pocket.

you the worker, are paying the bulk of the secret fees. The reason why you're not made aware of this is because there is no law that says that managers and fund companies doing the 401ks have to tell you.

And Boon Mee, the expense Ratios are fairly reasonable for the Fidelity family if my memory serves me correct.

Originally Posted by Butterfly

the expenses ratio in mutual funds are extremly regulated, so kickbacks is a no-no

trading fees and management fees can go as high as 10% per year (1% management fee, 1.5% administrative, the rest in trading cost, but that's hidden in the performance)

I think MM is refering to are for "private planners" with managed accounts, they can charge whatever they want and now show it in their performance reports.

And those managed funds generally earn higher (hopefully) returns than your plain-vanilla mutual fund.

Originally Posted by Boon Mee

Originally Posted by Butterfly

the expenses ratio in mutual funds are extremly regulated, so kickbacks is a no-no

trading fees and management fees can go as high as 10% per year (1% management fee, 1.5% administrative, the rest in trading cost, but that's hidden in the performance)

I think MM is refering to are for "private planners" with managed accounts, they can charge whatever they want and now show it in their performance reports.

And those managed funds generally earn higher (hopefully) returns than your plain-vanilla mutual fund.

Some do; some don't.

They are very similiar.

The S & P Index is averaging 12% per year over the last twenty year.

Many of these funds earn far less - but they tell you they are going up, more than they actually are, because of the fees.

Check John C. Bogle's latest book.

The post I made above was one month before the drop from the peak in October, 2007. Since that post above the S & P is down about 30%. Markets are cyclical and this market will be down for some time, I think. Obviously since only 11% of Americans have a defined pension benefit and the rest depend on 401Ks, a lot of people will be working a lot longer.

This article has charts and graphs if you click the link and want to see them.

Stock losses take hefty toll on nest eggs

Many forced to rethink when —if ever — they will be able to retire


updated 9:01 a.m. PT, Sat., Oct. 4, 2008

DES MOINES, Iowa - So close and yet so far. It's a frustration being felt by Americans who thought the finish line to their working life was almost in sight.

The financial crisis that toppled major Wall Street banks and snarled credit markets around the world has also taken a toll on nest eggs, forcing people to rethink when — and even if — their savings will allow them to retire.

More than half of people surveyed in an Associated Press-GfK poll released this week said they worry that they will have to work longer because the value of their retirement savings has declined.

Denise Edwards, 62, now expects to work for at least another decade selling condominiums because of the damage to her and her husband John's retirement savings.

"We just have to work for as long as possible. And we're going to have to count on our (two) daughters," said Edwards, who lives in a Virginia suburb of Washington.

Link & Entire: Stock losses take hefty toll on nest eggs - Retirement - MSNBC.com

^Right...well, as they say, you're not losing money until you pull the account, eh?

Everybody has to 'suck it up' and deal with the reality of the situation. Unless, of course, you were fortunate enough to have your 'pot' in gold before all this shit went down,?

The author's support for "gauranteed" pensions will not happen, IMO. The funds are not really there, and those days are gone.

But this article does reveal that with the hidden fees, limited options, and ~40% decline since Sept. 07, that many workers don't have faith in 401Ks.

Movement to Scrap 401(k)s Gains Traction


Net Gains: Guaranteed Retirement Accounts Are Getting Attention in Washington


Column By DAVID McPHERSON
Oct. 28, 2008

When it comes to how we spend and save, borrow and lend, nothing in this nation will ever be the same.
Today's stock market shocks are adding momentum to the idea that 401(k) plans should be replaced with a more stable retirement alternative.


I can't tell you how the financial crisis will be solved, when the Dow will return to 13,000 or if home prices will recover anytime soon. But the events of the past two months make it clear our national money habits are in for big changes.
Given that reality, there's one proposal you might want to keep an eye on. A recommendation to shake up the nation's 401(k) system is gaining traction as workers and retirees gape in horror at their investment account balances.
"Four weeks ago this plan didn't have a chance," conceded its author, Teresa Ghilarducci.

Suddenly, things have changed. Ghilarducci's proposal to create what she calls Guaranteed Retirement Accounts is gaining attention in Washington as the nation grapples with the issue of retirement security in the wake of a 40-percent-plus drop in the U.S. stock market this year.

"These last three weeks people are learning their 401(k) plans can go down," said Ghilarducci, an economist at the New School for Social Research in New York.

Called to testify before Congress earlier this month, Ghilarducci's ideas are gaining wide exposure nearly a year after she published a policy paper on the subject. She followed up that paper with a book published in May, "When I'm Sixty-Four: The Plot Against Pensions and the Plan to Save Them."

Her proposal calls for knocking down the 401(k) plan system and replacing it with a government-run pension plan funded by employee contributions. Participants would be guaranteed an inflation-beating return and a lifetime stream of income.
"What people want from their pensions is guaranteed income for life," Ghilarducci said in an interview Monday.

Link & Entire: ABC News: Movement to Scrap 401(k)s Gains Traction

Is the Congress proposing to nationalize a private retirement program, taking the assets and replacing them with a promissory note with interest?

I'm guessing the federal government will have the right to spend the money in Guaranteed Retirement Accounts on federal programs and will promise to pay what is owed on a ledger when the person retires. It sounds like a money grab and a way of flattening and evening everyone out. Will the tax deferment remain? If not I don't see any advantage whatsoever, other than it's 'safer' than doing my own investing.




From page two of the ABC link provided by MM:


Guaranteed Retirement Accounts

Here are the basics of her proposed Guaranteed Retirement Accounts:


• Employees would make mandatory contributions equal to at least 5 percent of the earnings. Workers could contribute higher amounts if they wish.


• Those contributions would be offset by a $600 federal tax credit each participant would receive.


• As with a 401(k) plan, workers would have individual accounts they could track. The balance of each account would depend on each worker's contributions and income level.


• The Social Security Administration would handle account management, and the Thrift Savings Plan -- a well-regarded retirement plan for federal employees -- would manage the money.


• Participants would be guaranteed a fixed rate of return that exceeds inflation by 3 percent. For instance, if inflation stood at 2 percent, the worker would earn 5 percent; if inflation reached 3.5 percent, the worker would earn 6.5 percent. Participants could receive an inflation-beating return above 3 percent if the government's investment returns were high enough.

• At retirement, participants' account balances would be converted into a lifetime stream of income that adjusts for inflation. There would be options to take partial lump sum payments, opt for lower payments in return for survivor benefits and, upon death, leave a portion of a financial account balance.

Originally Posted by Sir Burr

No, British, but, I worked for US companies based in Houston. I haven't seen any fees in any of the 401k schemes I've been in.

Maybe you have the one and only no fee 401K in the world.

Sounds quite likely, no?

Sir Burr, you did have fees in your 401K. They were hidden. It's also legal not to tell you.

As Attaboy posted a portion of the article, above. The scheme in the article sounds just as messed up as Social Security.

Either way, we are screwed.

I didn't have 401Ks available (matching employer) but instead a gov-sponsored tax shelter called Thrift Savings Plan.

It's essentially a 401K for government employees. Can't withdraw for another 20 years or so -- so if it's not depleted/worthless now, it likely will be by then.

Originally Posted by Texpat

Can't withdraw for another 20 years or so -- so if it's not depleted/worthless now, it likely will be by then.

Don't worry Tex. Washington will make sure you are protected.


Remember, Your vote matters!

Here's an article about companies cutting matching. But the article also delves into other issues about the 401K. Also, check out the posts below the article. Some insightful comments by the people who describe their 401K (horror) stories.

Companies Cut Employee Retirement Plans

In This Recession, Some Companies Eliminate Their 401(k) Matches


By SCOTT MAYEROWITZ
ABC NEWS Business Unit
Dec. 19, 2008

34 comments


If it isn't bad enough that Americans have seen the value of their 401(k)s plunge this year, now some companies are abandoning their 401(k) matching contributions to save cash.

ABC News: Companies Cut Employee Retirement Plans

Talk of alternatives: It's a little late for the Baby Boomers, isn't it? I know very few people who went into cash from the 401Ks equities, and when they did it was after losing a lot.

March 25, 2009, 9:00 pm So Much for the 401(k). Now What?

By The Editors (Photo: Spencer Platt/Getty Images)
Tens of millions of Americans are enrolled in private employer-sponsored retirement plans — the great majority of them in 401(k) plans, which long ago replaced traditional pension benefits. These plans are easy to participate in with payroll deduction, and most people — once signed up — don’t spend much time thinking about the investments they’ve chosen.



All that has changed in recent months. The huge loss of value in those accounts, caused by the stock market decline, has imperiled retirements for older workers and caused younger workers to wonder whether they should have participated at all.
Given the wipe-out of years of savings, are there ways to make retirement nest eggs safer? What might replace the 401(k) as the dominant savings vehicle?

• Alicia H. Munnell, Center for Retirement Research
• Jacob F. Kirkegaard, research fellow, Peterson Institute
• Thomas R. Saving, economist, Texas A & M
• Teresa Ghilarducci, economist, The New School
• David C. John, senior fellow, Heritage Foundation
• Thomas C. Scott, money manager

Link: So Much for the 401(k). Now What? - Room for Debate Blog - NYTimes.com