Bluefield Daily Telegraph, Bluefield, WV

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March 19, 2013

401 (k) investment plans have shortcomings

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BLUEFIELD — Even worse, many companies push their employees to use 401(k) money to buy stock in the company they work for.

If the company goes broke, people lose their jobs and their retirement savings, too.

There is a second major problem – not putting enough money in the 401(k) to begin with. 401(k) plans give people too much freedom.

I’ve always encouraged people to put the maximum amount into a 401(k) plan. Few do. Many put in little or nothing at all.

Now they are looking at a bleak retirement. Or no retirement at all.

Defined-benefit plans encouraged people to stay at the same company. 401(k) plans do not.

I’ve watched tons of people change jobs and then blow the 401(k) money before they started their new job.

Over 70 percent of people with a lump sum of money will run through it in five years or less. The same statistic holds true for 401(k) rollovers as it does for lottery winners.

Two things should be done to help people retire.

One would be to make it easy, and cost efficient, for employers to go to a defined-benefit plan and guaranteed income plans. That would make sure our retirees have money for the rest of their lives.

Second would be to change the way 401(k) plans are administered.

Take them out of the employer’s hands and let employees invest in whatever, and with whomever, they like. Just like they do with their IRA accounts.

When historians study the cause of the 2008 economic meltdown, they will see that the change from defined-benefit plans to 401(k) plans in 1982 was a factor.

It was one of many shifts where dramatic changes were made in people’s lives and liberties. People didn’t realize just how dramatic until years later.

If we are going to keep from running behind, 401(k) is one of those things we need to fix.

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Don McNay is a columnist for the Rchmond (Ky.) Register. Contact him at don@mcnay.com.

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