Last Sunday's (4/19) broadcast of CBS's 60 minutes included a segment on the 401k plans that many americans have relied upon to help fund their retirement needs in later years. If you missed the broadcast, you can replay it on the network's web site at: http://www.cbsnews.com/stories/2009/04/17/60minutes/main4951968.shtml
I feel the journalistic message delivered was helpful, raising important questions that should alert you if you own a 401k or retirement plan. Coincident with the above, the tone by the participants and interviewers was very dour and pessimistic. CBS News Steve Kroft was the reporter, who chased down financial friend and foe that had interests in the 401k plans. The parties included investors, retirement plan designers, and politicians trying to help with some new legislation.
More than one investor's story was told about losing money in their retirement plans. Kathleen Coleman was the headliner interviewee at age 54. Her 401k plan balance declined from $88,000 to $50,000; "I don't deserve this" she says. Worker Alan Weir opened his 401k statement on-air; he lost half his money in a number of months and expects never to see it come back. Hold the story: Alan, open your statement when you get it, take some action! What are these workers thinking? They are all old enough to remember the dot-com meltdown, the subsequent 100% stock market gains from 2002-2007, and the great bull market run of the 1990's. If you are loaded to the gills with stocks or stock mutual funds, you will get mauled in a bear market. Some will get hurt less than others. Suggestion: learn some tactics that will preserve your retirement money when the markets turn ugly. From the performance shown by these investors, I gather they had 70% or more of their plans in stock-based funds. Did they seek outside advice? Attend the 401k employee investment meetings? Consider other options? Ask lots of questions? Look at a chart?
I wonder when these interviews took place? The stock market has gained about 25% since early March. CBS should do a follow-up in a year with the same investors to see how they fared, but that will never happen.
David Ray, President of the 401k Council of America told it fairly correctly - the plans did not let people down - the investments and stock prices let people down. The plan participants (employees) were not aware of the risk of owning ABC or XYZ mutual fund. Consider: Last year, 373 stocks on the New York Stock Exchange gained in value; that's just 1 in 12; in 2007 it was 1 in 3. You can't make decent money as a stock investor with these odds against you in a crappy market, and most mutual funds will follow the direction and velocity of stock indices. You can lose big time if you don't have a game plan. Mr. Ray ended the interview paraphrased 'the realities are the you cannot count on it coming back; do not have unrealistic expectations'. He did look foolish at the end of the segment and danced around the legislative jam on getting disclosure with the fees. Being a lobbyist for the industry tells us all where his allegiences stand. He ended by chiming that we need to be truth-tellers to investor's; they can't count on the money come back, but maybe it will. Why not end on a positive note? I wonder how many people sold their 401k stock funds the next day or since then based on this reporting?
Virtually all retirement plans offer offer safer non-stock based options: money market funds; stable value funds; US Government Bond Funds to name a few.
Concerning 401k plan fees, this was an eye opener for most and good reporting. True, the fees in the plan prospectus are confusing, and I would support legislation that presents full disclosure. For now, it's a call by you to pick those funds with lower fees. I would select from the lower cost stock index funds if they are offered. Some plans that I have seen offer only one fund in each category; that's just not right. You need some selection since that fund can be a real 'dog' and not perform well. Also, I suggest comparing your 401k mutual fund with the same fund outside of your plan to see how much higher the fees are inside your plan. True, fees can be a drag on your performance, but it looks much worse in down markets, when you're not getting any return on your money and still paying the fees.
The 401(k) Plan Escape Hatch
Did you know that retirement laws allow employers to offer options to "move your money" from the plan to another investment account (I.R.A.), etc. while still working? It requires adding a provision to the plan that allows this (write this down), IN-SERVICE, NON-HARDSHIP WITHDRAWALS. Ask your human resource office if that is allowed in your plan today. If it is, get the paperwork to get it started if you're not happy; if it's not, ask them to check with the plan administrator to see if they can adopt it. I've been told mistruths and run around on this, so you must be persistant. Call me if you want me to help you through this.
FREE REPORT ... Tapping Into Your 401k Money Before Retirement
This report, by a noted retirement planning expert I use, details the ways to go about your quest to be "401k free" with all or a portion of your money. It's about a 20 page read. Ask me for a copy and I will e-mail you the *pdf file. What could be more important financial-wise than your future and retirement goals. e-mail me at: Unterbrink@usa.net and ask for the 401k Escape Hatch Report.
~Barry Unterbrink
