Plenty of Pain to Go Around

It's something of a cliché, but bursting bubbles tend to splatter scorching red ink in all directions. This time is no different. Not only are investors and homeowners getting burned by the unfolding financial crisis, so are banks, businesses, schools, municipalities and charities. According to a Wall Street Journal report, "Workplace Retirement Plans Suffer $2 Trillion in Losses," working Americans with self-directed retirement accounts are also feeling a lot of pain.

Americans have lost $2 trillion in their workplace retirement plans in the past 15 months, threatening the security of millions, according to government data.

The Congressional Budget Office disclosed the figures at a hearing by the House Education and Labor Committee, prompting some legislators to question whether retirement-savings plans are inherently too risky. The $2 trillion figure includes 401(k) plans -- which have become the primary savings vehicle for 60% of workers -- as well as traditional pension plans.

The 401(k) plans, which require workers to manage their own retirement savings, have been the hardest hit, according to the Congressional Budget Office.
 
While some 401 (k) participants are making unwise investment choices, the "exposure to broad market risk is unavoidable" for nearly all workers, said Peter Orszag, the Budget Office's director. That's partly because investment choices in the plans are weighed in favor of equities.

The losses, which are likely to force many people to delay retirement, are prompting some legislators to take a new look at the legislation that created 401(k)s and subsequent laws that have allowed investment companies to steer workers into riskier funds. Congress created the investment accounts about 25 years ago. Today, 401(k)s have largely replaced traditional defined-benefit pension plans.

Rep. George Miller (D., Calif.), committee chairman, said "evidence is starting to accumulate that this is an inadequate vehicle."

Teresa Ghilarducci, a professor of economic policy at the New School for Social Research in New York, said Congress should let workers trade 401(k) assets to the government -- perhaps valued at mid-August prices -- for a retirement account composed of government bonds. She called the 401(k) a "failed experiment."

Comments

[Trees Full of Money]

Blaming the government and mortgage lenders for the current financial meltdown, is akin to blaming McDonalds or the candy aisle at Wal*Mart for making us fat. Yes they offer the product for sale, but ultimately we have the choice of whether or not to buy it.

With the exception of those families who truly faced financial hardships beyond their control (medical emergencies, jobloss, etc.), a significant number of American Families willingly positioned themselves within a paycheck or two of bankruptcy due to their own greed.

[Steve]

What ever happened to personal responsibility? "Congress should let workers trade 401(k) assets to the government -- perhaps valued at mid-August prices -- for a retirement account composed of government bonds."

I educated myself and had almost nothing in left in stocks by May of '08. I put a large down payment on my house and have been paying it off early. I have no other debt )Congress should let workers trade 401(k) assets to the government -- perhaps valued at mid-August prices -- for a retirement account composed of government bonds(not even car loans), and have bought gold and silver. But no, lets have a "do-over" and all the debt and losses are miraculously gone! What a crock o' crap. And my savings account pays paltry interest because we have to encourage borrowing!

I think our society thinks there is no risk in this life. Someone will bail you out. Eat whatever you want and the medical profession will save you...where will it end?

[MichaelN]

Per Teresa Ghilarducci, because I moved my 401k money from various stock and bond equity funds in May of 2007 - precisely due to my reasoning that the world of finance was structured like a "house of cards" (it helps that I'm a mortgage broker and saw what was coming down the pike - y'know, that home values NEVER decline - ha, ha. I always laughed at that one. Also know that I wrote no sub-prime and that NONE of my loans, 99% placed with Wells Fargo AND per Wells Fargo, are delinquent) - those that stayed with these investments are bailed out? With whose money? Obviously, not their's, but mine! But I need my money for two kids going to college.

Oh wait, no problem, we'll just pass that burden on to them when they graduate! That burden plus the one spinning on the "National Debt Clock" - thank you Washington, D.C.!!!

[roger]

(is akin to blaming McDonalds or the candy aisle at Wal*Mart for making us fat. Yes they offer the product for sale, but ultimately we have the choice of whether or not to buy it.)NOT SO FAST! Brain washing starts at an early age.
Mc Donald knows this very well and to entice & program you they offer toys to the youngsters,ULTIMATELY you have been programed when you were still in the cradle, there are many many tricks performed by big BIZZ and the financial sector,why do you think they pay billions to psychologist and advertising
agencies?The will of the individual ... its in your head unless you do do some very serious reading'

[Lady From Middle America]

How about all of the "experts", who, from the time 401(k)'s were first created, have been advising workers to keep their money in stocks during bear markets? And who bring out charts showing that over the long run, people who keep their money in the stock market gain more than those who keep their money in lower-risk investments?