401k plan administrators getting desperate

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jgreco's picture
jgreco
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401k plan administrators getting desperate

Thought I'd share with you all a small ancedote from my job today.  Every year we have a meeting to go over our company's FSA and 401k offerings.  It's always been a pretty boring affair with a run through how to sign up, contribute, etc.

This year they stepped up the marketing.  There was a PowerPoint at the beginning with how social security might not be there when we retire, how inflation would just eat up a savings account, how the markets always come back.  Big unethical scare tactics to get people to sign up. 

This has got to be a coordinated effort by the plan administrators.  I'm guessing they're seeing people stop contributions in droves.  Personally, I dumped all my stock funds into treasuries at the beginning of the year (only asset that is going to gain in deflation) and have stopped contributing further.  I can better manage my money without the fear of a coming much higher taxe rate eating into my gains later.

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zekharyah1
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Re: 401k plan administrators getting desperate

I'm getting more concerned that our nations financial crisis is only preceding an eventual forced confiscation of individual assets for "the greater good of the nation".  Most people believe this confiscation will target gold and silver holdings, but I'm increasingly concerned that 401Ks will be the first place the government will grab funds from the public.  Here is my reasoning.  Most people don't have gold an silver, but many have retirement plan under 401ks with their employers.  They are long-term oriented, and the holder is unable to get into the funds without a significant penalty; therefore, people are already conditioned not to expect the money for years.  I also believe that people would be very willing to let the government "take care" of their future in a time of crisis.  401k confiscation could be marketed by the politicians as a new social security.  In light of this, I'm considering not contributing anymore.  What you you all think?

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Re: 401k plan administrators getting desperate
zekharyah1 wrote:

I'm getting more concerned that our nations financial crisis is only preceding an eventual forced confiscation of individual assets for "the greater good of the nation".  Most people believe this confiscation will target gold and silver holdings, but I'm increasingly concerned that 401Ks will be the first place the government will grab funds from the public.  Here is my reasoning.  Most people don't have gold an silver, but many have retirement plan under 401ks with their employers.  They are long-term oriented, and the holder is unable to get into the funds without a significant penalty; therefore, people are already conditioned not to expect the money for years.  I also believe that people would be very willing to let the government "take care" of their future in a time of crisis.  401k confiscation could be marketed by the politicians as a new social security.  In light of this, I'm considering not contributing anymore.  What you you all think?

I have some of the same concerns.  I do not contribute anymore and I have contemplated liquidating one of my accounts and paying the penalty and taxes.

The government created these retirement plans and make the rules for them.  It is not a huge stretch to see them claiming complete control over them.

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Re: 401k plan administrators getting desperate

It's funny, back in September I drew an Exponential Curve on a piece of paper and showed it to my 401k plan agent when he came to visit.  He basically laughed at me, said government debt was manageable, there was plenty of oil,  I should average 10% return per year, and would have over a million by retirement.  

Within my plan choices are pretty limited to the standard kinds of stock and bond mutual funds plus a treasury money market fund.  I moved everything into treasuries or government securities before things really tanked (thanks to this site), but I think I'm the only one in my company who has picked up on the significant risks the markets will never rebound to like before.  A few other folks switched new allocations to treasuries, but that seems backwards if you have any confidence in the market - you should buy stocks while they're low right!?  I'm staying on the sideline for now; this a volatile trader's market, not for buying and holding.

My big concern is I can't by law withdraw my 401k money unless I retire (25+ years  out) or quit (that ain't happening).  I'm being told no non-hardship withdrawals are allowed, even if you pay a penalty - is that the law???  My company doesn't allow hardship loans either. 

So basically I am stuck loaning the government the amount of treasury funds I own.  Is it really worth now the tax deferred earnings or even the company match if this money cannot be accessed before the dollar totally tanks or inflation goes into hyperdrive?  I'm contemplating stopping further contributions even if it means giving up a company match, if the laws don't get changed on withdrawals.  It should be like with a personal IRA where it's your money to withdraw if you choose to accept the 10% penalty.

The traditional assumptions of using the stock market for a retirement savings account are going to be significantly altered in the future.   

And no hope I'll ever get back any of the social security I'm paying now.  At least my parents are collecting. 

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Caasi
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Re: 401k plan administrators getting desperate

I think you have something like this in mind (from Nov 20 2008 AP):

" BUENOS AIRES, ARGENTINA — Argentina's Senate has approved a state takeover of $23 billion in private pension funds. ...

President Cristina Fernandez, saying pensions should not be "gambled," sent the measure to Congress in late October at the height of the financial crisis. The move, she said, would protect retirees' funds from market fluctuations amid the financial crisis."


http://www.chron.com/disp/story.mpl/world/6124181.html

The link reads as you might expect.

Caasi

 

 

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Re: 401k plan administrators getting desperate

Woodman

I did essentially what you did.  I took everything in my retirement fund out of stocks last January and put it all in treasuries.  I took a little hit, but most of it I've recouped since then.  Unfortunately, my plan doesn't offer anything other than treasuries or stock funds.  So, I'm rolling it over into an IRA that I'll be able to put where I want, mostly overseas and in gold.  But, I'm continuing my contributions to the fund because I want the employer match.  I would caution you not to give that up.  Its free money.  In my case they double my contributions up  to a certain percentage of my income.  Treasuries would have to go down 50% to wipe their contribution out, but mine would still be intact, and that's pretax money.  I don't think that's going to happen anyway.

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Re: 401k plan administrators getting desperate

I've been watching this for some time.  Here is an excerpt from my October 25 post...

 

"...The last $80B comes from closing the tax loophole on 401K accounts and similar personal retirements accounts. Now, I am not suggesting that our government seize the $3T in personal retirement accounts like Argentina since I believe that our personal retirement accounts are protected under the Fourth Amendment of the US Constitution. I am saying however, that the tax preferences offered these accounts are costly to our country and a significant drain on government's ability to achieve wealth fairness.

As of now, Americans can contribute to private retirement accounts on a before tax basis- meaning that the portion that is contributed effectively reduces their Adjusted Gross Income and therefore their tax liability. In addition, gains are not taxed until money is withdrawn thus delaying revenue to the government and possibly reducing that revenue as the citizen is most likely to be in a lower tax bracket when they start withdrawing. All this must stop. We just can't afford this largess anymore.

Would you like some more tea?..."

 Full text here --> http://tedbits.blogspot.com/2008/10/final-circumfusion.html

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Re: 401k plan administrators getting desperate
woodman wrote:

 I moved everything into treasuries or government securities before things really tanked (thanks to this site), but I think I'm the only one in my company who has picked up on the significant risks the markets will never rebound to like before.  A few other folks switched new allocations to treasuries, but that seems backwards if you have any confidence in the market - you should buy stocks while they're low right!?  I'm staying on the sideline for now; this a volatile trader's market, not for buying and holding.

 

Ha!  Same thing here.  Everyone is living in denial thinking a market rebound is just around the corner.  It's been painful for a lot of them, some have lost more than 40%.   I've been preaching the move into treasuries to coworkers since this summer and only one has listened.

woodman wrote:

So basically I am stuck loaning the government the amount of treasury funds I own.  Is it really worth now the tax deferred earnings or even the company match if this money cannot be accessed before the dollar totally tanks or inflation goes into hyperdrive?  I'm contemplating stopping further contributions even if it means giving up a company match, if the laws don't get changed on withdrawals.  It should be like with a personal IRA where it's your money to withdraw if you choose to accept the 10% penalty.

I wouldn't give up free money with the company match.  Those treasury funds are going to continue to outperform everything else as the Fed starts buying up treasuries to force down the yield.  You have several years before worrying about inflation, let alone hyper-inflation.  By then you may have switched jobs and rolled it over into an IRA.  Even if you believe hyper-inflation is right around the corner (it's not), it's doubtful that the little extra money from not contributing would make a big difference in your preparation for it.

woodman wrote:

The traditional assumptions of using the stock market for a retirement savings account are going to be significantly altered in the future.   

 

Totally.  Anything that depends on 8-10% returns in the market (state pensions & 401ks for retirement, college endownments, annuities, etc.) no longer works as a business model.  The world is going to have to figure out how to adjust to a vastly lower rate of return.  

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Re: 401k plan administrators getting desperate
jgreco wrote:

... Everyone is living in denial thinking a market rebound is just around the corner.  It's been painful for a lot of them, some have lost more than 40%.   ...

 I know someone who owned shares in Washington Mutual and AIG, plus a bond from Lehman Bros. that defaulted, yet they say they are not selling any stocks because they don't want to pay capital gains tax.

 

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Re: 401k plan administrators getting desperate
jgreco wrote:

I wouldn't give up free money with the company match.  Those treasury funds are going to continue to outperform everything else as the Fed starts buying up treasuries to force down the yield.  You have several years before worrying about inflation, let alone hyper-inflation.  By then you may have switched jobs and rolled it over into an IRA.  Even if you believe hyper-inflation is right around the corner (it's not), it's doubtful that the little extra money from not contributing would make a big difference in your preparation for it.

Even if you're correct that inflation/hyperinflation won't happen for a while, what happens if foreign countries start dumping US dollars, probably to the benefit of the yen?  I was looking at currencies the other day comparing many of the major currencies against the US dollar.  Up until last summer every one of them was gaining in value against the dollar.  When the crisis reared its head, all of them dropped, except one, the yen.  It continues to gain value against the US dollar.  I find this very worrisome.  The faith in the US dollar as the "go to" currency hangs by a thread.

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zekharyah1
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Re: 401k plan administrators getting desperate

Caasi

This is exactly what has me concerned.  Who in the world has more debt than anyone?  US!!!!!  How is it fair that the U.S. can keep printing money to pay for interest owed and others don't have that option?  By the way.  It wouldn't surprise me if some sort of national sales tax will be implemented due to the declining numbers of people filing tax returns each year.  Thanks for posting the article.

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Re: 401k plan administrators getting desperate
Doug wrote:

Even if you're correct that inflation/hyperinflation won't happen for a while, what happens if foreign countries start dumping US dollars, probably to the benefit of the yen?  I was looking at currencies the other day comparing many of the major currencies against the US dollar.  Up until last summer every one of them was gaining in value against the dollar.  When the crisis reared its head, all of them dropped, except one, the yen.  It continues to gain value against the US dollar.  I find this very worrisome.  The faith in the US dollar as the "go to" currency hangs by a thread.

The Yen is going up because the carry trade is being unwound.  Their interest rates have gone from 0.5% to 0.3%, ours have dropped from 5.25% to 1%.  It will continue to gain a bit against the dollar and significantly against all other currencies.    But that's very different from people going into the Yen because it's replacing the dollar as the world's reserve currency.

As long as deflation keeps hold of the world the dollar will continue to get stronger against a general basket of currencies.  With commodities crashing, oil falling to new lows every day, homes sliding in prices, stocks obliterating, and unemployment skyrocketing we aren't going to be out of deflation for a long time. 

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Re: 401k plan administrators getting desperate
zekharyah1 wrote:

I also believe that people would be very willing to let the government "take care" of their future in a time of crisis.  401k confiscation could be marketed by the politicians as a new social security.

That's a good point. In thinking about the people I know and work with, I'm sure none of them own gold or silver. I could just picture myself going to work after the news of the gov't confiscating personal gold and getting a "so what" response. I would half-expect some of them to actually take a stand that it could even be "a good idea" as a well to "redistribute wealth" Obama-style. I always pictured these people freaking out if it was their 401k, but considering zekharyah1's point, I may reconsider.

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Re: 401k plan administrators getting desperate
woodman wrote:

I moved everything into treasuries or government securities before things really tanked (thanks to this site)

Doug wrote:

I did essentially what you did.  I took everything in my retirement fund out of stocks last January and put it all in treasuries.  I took a little hit, but most of it I've recouped since then. 

Considering that it has tanked now, would you still recommend doing this? I'm pretty new to all this so thus, I'm playing catchup as quickly as I can. Of course, there's no such thing as "catch up" when it comes to stock market investments, but I hope you understand what I'm saying.

I would appreciate feedback on whether this is a good/bad idea and why/why not, especially considering everyone has now flocked to gov't securities. The company my wife works for is changing its available fund options so everyone has to re-allocate their funds to new ones by the Dec. 15th.

Thanks for the discussion. It's been very helpful.

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Re: 401k plan administrators getting desperate

I'm thinking a lot about this now also.  I can't give any advice, but I will share my thoughts.

From a conventional pov, now may be a good time to buy some stocks if you think the markets have bottomed out.  The DOW seems to have formed a floor at about 8000.  The dollar appears to be strong, gold prices seem have a ceiling around $800 and the price of oil has dropped to lows not seen in quite a while.  There are apparently Priuses sitting unbought in car lots.  People aren't willing to borrow money to buy one while gas prices are so low.  And, gov't securities have provided a refuge from the crashing markets.

OTOH, the world's economy appears to be on a very shaky balancing point.  Credit still isn't flowing as it was before the crash.  The demand for credit is way down while there should be capital available to lend money supplied by bail outs now happening around the world.  Unemployment is growing faster than at any time since the Reagan recession, and may well surpass that high.  Federal debt is at unbelievable highs and appears to be out of control.  According to the latest data we have been in recession for a year with no end in sight, despite the above noted positive signs.  The big 3 auto makers are begging for loans, whether they are called bail outs or not, to prevent bankruptcy of their companies, leading to millions more on the unemployment lines.

My take on all this is that the positive signs are based on debt, just as the appearance of our prosperity of the last few decades was built on debt.  This cannot be sustained in the long term.  The question for me now is when we have to start paying back the debt; now, or will the bail outs allow us to kick the can down the road a ways?  This isn't an academic question to me.  Many of my colleagues have ignored their retirement funds under the theory that they have been doing the right thing by obeying the advice of the investment industry to buy and hold, in good times and bad.  Since most of them have a while to go before retirement they think that things will inevitaby bounce back.  I, otoh, am thinking of retiring in the next 6 or 7 years and no longer have that long view to comfort me.  That's why I moved my money to gov't securities when I did.  It has proved to be a good move at this point, but my question is, as is yours, what to do now.  I am not confident that gold will prove to be the refuge it was in the past from depreciating currencies.  It appears to be acting like other commodities.  I don't know when the dollar will start to be dumped in currency markets, only that it will at some point.  Have stocks actually stabilized or is this another dead cat bounce?  My most dreaded fear is that all these indicators will collapse at the same time, leading to the kind of economic disaster many on this website expect.  My most optimistic fantasy is that the economy will stabilize long enough to allow the inevitable collapse to be softened by spreading out the pain over time and allowing businesses, taxpayers and consumers alike to adapt more slowly by putting in place energy efficiencies, paying off debt, saving, reorienting the economy to more sustainable technologies and models and people taking more responsibility for their lives.

IOW, I don't have any answers, just observations and questions.

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Re: 401k plan administrators getting desperate

Doug, thanks for your observations. I have another question regarding this:

Doug wrote:

Woodman

Unfortunately, my plan doesn't offer anything other than treasuries or stock funds. So, I'm rolling it over into an IRA that I'll be able to put where I want, mostly overseas and in gold. But, I'm continuing my contributions to the fund because I want the employer match.

 

That's precisely what I had in mind. If I were interested in putting part of an IRA "in gold", where would I start looking? Do you have any specific options? I apologize if these questions are inappropriate. I find it most useful personally, if I use people's specific examples as a starting point for my research, rather than just broad perspectives on funds, etc. I certainly still apply the broad understanding, but the specific examples allow me to drill down to specific answers faster.

Side note: I find it interesting that when many of us enter the work force and choose from our employers available plans, that we are encouraged to move right into stocks and higher risk / growth funds, because we have "all the time in the world." PMs would never be mentioned at this point.

I see the logic here, but it is counter intuitive to how I try to live the rest of my life. I tend to try to develop a stable base first, regardless of how much time I perceive that I have, then move to riskier items with what's left, adding more risk steadily as I get comfortable with each layer of risk.

With this logic, wouldn't it make more sense to start with an investment in PMs, then maybe gov't securities, then stocks etc?
Sort of a "Only gamble what you can afford to lose" type of approach? Again, I understand the logic of getting in soon to allow for the most time for growth, but does that necessarily make that approach a responsible one? I see a parallel here with Chris' "3 tier approach" in chapter 20. Thoughts?

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Re: 401k plan administrators getting desperate

LaFanze

It occurred to me that my posts may seem contradictory concerning gold.  My thinking on the subject is that, even if gold continues to act like a commodity, there probably isn't much more downside to commodities in general, but if investors start looking at it as the store of value it has traditionally been, there could be a considerable upside.  In any event, it is probably at least a good preservation of capital tool.

Where you buy is another aspect that I am not particularly well versed in.  There are others on this board that know much more than I.

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Re: 401k plan administrators getting desperate

I realize this is all speculative, but IF the gov't actually did take control of 401k and/or 403b funds, would IRAs escape such a money grab?  I realize there is a difference in how IRAs and 401ks work as far as investment strategy, but is there some other difference in the eyes of the gov't, legallly or otherwise, that would keep them out of IRAs?

Again, this is all speculation, but I'd be interested in people's thoughts on this.

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Re: 401k plan administrators getting desperate

The answer to the gold or stocks or bonds...etc...question is to technically time everything.  You might think you know what's going to happen and when....but don't count on it.

I heard of someone who put significant $ into the energy sector based on certain expectations...then oil drops like a rock.  Same thing happened with gold.  And stocks. Right now might be the time to buy all 3?

Bonds have had a recent parabolic rise...buy now?   Maybe not?  Wink

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