Should 'forced savings' replace 401(k) plans?
IRA, 401k and 403b plans lost an estimated $2.5 trillion last year, pushing back retirement for millions. Now Congress is weighing calls for a more conservative "forced-savings" plan to supplement Social Security.
Reader Donald Smerecki, a retired rail-traffic manager in Ford, NJ, called me to challenge Congress's interest in a "forced-savings" plan to supplement -- or replace -- worker-managed 401(k)s.
"If you can't think for yourself, why are you investing?" Smerecki asked me. "I was in 401(k) from the beginning," when Diamond Shamrock Corp. gave him a worker-run, company-subsidized retirement plan around 1980. "I rolled the funds over when I moved" to Georgia Pacific, Essex Chemical, and finally Formosa Plastics Corp., from where he retired in 2005.
"I made a lot of good decisions. In the Clinton Administration, I put 'em in sciences, and Merrill Lynch Fund B. Made a killing. When I went to Formosa I rolled it over with a six-figure profit." He says he sold the stock funds in 2007, and bought real estate funds, which he said have done all right. "I don't have any mad dogs." But he's afraid of inflation -- which he expects will be the big result of Washington's economic rescue attempt.
For another view, here's Ron Barras Jr., a printing and graphics worker who rues the day his former employer, Peco Energy Co., replaced its pension plan with a 401(k) for nonunion workers:
"The old pension manager was likely to make sure the funds were invested wisely and conservatively, since he had to come to work each day facing 10,000 people who depended on him... By around 1990, the pension was phased out, and we all became our own personal pension fund managers. When the market boomed, we gambled and bet our money on high-risk funds so that maybe we could retire early. I'm willing to bet my depleted fund balance that not many of us went back and readjusted... when the market headed downward...
"Are we all a little to blame for turning into high-stakes 401(k) poker players? Or was it our CEOs who made deals with the Morgan Stanleys of the world, when they brought them in to manage our 401(kS0s, and made hefty commissions? I think a forced worker-savings program," managed conservatively, "is not a bad idea at all."