The 401(k) System: Great for Wall Street, Bad for Retirees

[NNN0LHI]

http://www.policyshop.net/home/2012/5/30/the-401k-system-great-for-wall-street-bad-for-retirees.html

Here’s a question that you probably don’t want to answer honestly: What fees are you being charged by your 401(k) plan?

Don’t feel bad if you haven’t got a clue, because that puts you in the majority. An AARP study a few years back found that 65 percent of 401(k) account-holders didn’t know they were even paying fees.

This ignorance is no small thing, it turns out, because such fees take a huge bite out of our retirement savings over the long term. According to a new Demos study by my colleague Robert Hiltonsmith, the ordinary American household “will pay, on average, nearly $155,000 over the course of their lifetime in effective total fees.”

That is serious money, especially given that many Americans haven’t stashed away nearly enough for retirement. How do financial firms manage to steer such a big slice of our nest eggs into their own pockets? By hitting us with a blizzard of costs that are difficult to identify and track. A typical 401(k) plan charges administrative fees, asset management fees, and trading fees. Investors even pick up the tab for "marketing fees," paying for all those pesky fund brochures and indecipherable financial statements that your 401(k) provider constantly sends to you.

[Cary]

1. This fraud is nothing new

This is what the banksters do.

How many people know the fees they pay in their mutual funds? How many people know the fees they pay in cash value life insurance policies?

[Common Sense Party]

9. With mutual fund fees, I get a prospectus and an annual report, two publications each year,

that tell me exactly how much I m paying in fees. It's not hidden.

And in many 401(k) plans, you're not paying a whole lot more in fees than if you invest in a mutual fund on your own.

[Cary]

11. Are you sure?

There is a more recent article somewhere, or perhaps it was a CNBC documentary? I don't know but the bottom line is that even an expert cannot tell what the real costs of mutual funds are.

http://online.wsj.com/article/SB10001424052748703382904575059690954870722.html

No, they do not disclose all of their fees and costs and they don't have to either.

I trade stocks directly. The mutual funds I have owned and my wife owns generally suck. It may be that I'm better at picking stocks than I am at picking funds, but I still think they're skimming.

[Paulie]

14. Are you also reading the SAI?

The Statement of Additional Information? Because the fees recorded in here, for things like fund brokerage expenses, are NOT in the prospectus. The SAI runs 300+ pages per fund. So you have a fund that is costing you 1.5% a year in expenses per the prospectus, the SAI will probably have another 1.5% or more (depending on the turnover rate of the fund, more trading more brokerage expenses, so higher fees).

For my 403b plan (non-profit equivalent) my funds are "funds of funds", so I pay the expenses for the holding fund, and each of the child funds in turn, plus all the SAI charges. Probably costing me 5% to hold this stuff. Wish I had the option for an inservice withdrawal into a rollover IRA where I can put it into ETFs.

[Cary]

18. I'm not reading the SAI because I'm not buying funds.

If buying funds works for you that's great. It hasn't worked out well for me, as full service brokers didn't work well for me.

Buying individual stocks on E-Trade has worked out really well for me. Sure, I get clobbered with the market. But my experience has been that as long as I don't panic I invariably have come out of it well. In fact the dips are opportunities.

I have made some mistakes but the gains have offset those mistakes nicely, and I'm at $9.99 a trade so the fees have been minimal.

[no_hypocrisy]

2. * and Cheney wanted to convert Social Security to a gian 401(k) account.

If both houses of Congress were republican, it would've happened.

[Mairead]

3. Many people are gradually wising up to the way Wall Street is rigged

in favor of the connected rich, and they don't want any part of it.

But the WS crooks will keep us tethered by law and milk us like cattle until we get together and say with one, loud voice "ENOUGH!"

[Egalitarian Thug]

4. K&R. Another fraud we were warned about over and over again. n/t

[KansDem]

5. Could you use and extra $155,000 when you retire?

I know I could.

But, unfortunately, it's going to someone else's retirement...

[mopinko]

6. not surprising as they were meant to benefit

wall street, not retirees.
and when we all start taking withdrawals at the same time......

[CoffeeCat]

7. Yes, so many have dipped into their 401ks...

...as the economy has tanked. There is a 30 percent penalty on all monies that are withdrawn before
retirement age. That is so outlandish...30 percent! I think the mafia might charge less from one of their
loan sharks.

I am wondering...how do you know (or not) if you are being charged fees for your 401k? We get a statement, but
I have never noticed any mentions or costs listed for fees. How would someone go about finding out if they have
been charged fees?

And yes, as someone else said--Bush/Cheney really ramped up an effort to turn Social Security into a boon for Wall Street.
We would have had the option of our Soc Sec going straight to Wall Street. This was BEFORE the economy tanked!!!
Does anyone talk about the implications of what would have happened to so many people if Bush/Cheney had realized
their dream of privatizing Social Security? And they almost got away with it. Right-wing radio had convinced the
useful idiots that it was THEIR MONEY and that THEY WANTED TO DECIDE what to do with it...damnit! Those fools never
realize that the right wing will use them and spit them out--in order to enrich their Wall-Street buddies.

I can't imagine how many billions Wall Street would have made if Soc Sec was partially privatized. People would be even
more poor and in trouble than they are now. Anyone who doesn't believe that they're culling the herd--by driving the
lower 80 percent into destitution--is living in Pollyannaville.

[Common Sense Party]

10. There is a 10% penalty for early withdrawal, not 30%.

You'll have to pay regular income taxes regardless of when you take it out.

There should be a place on your 401(k) website that discloses the fees.

If not, n a couple months, you're going to get more information on fees than you ever wanted to know, due to the new regs.

[ieoeja]

19. There should be no problem when more people are withdrawing from 401(k) than contributing.

The withdrawals will simply be paid by selling stocks which will cause a collapse of the stock market like none seen before. However, the financial experts, seeing this coming, will have shifted all their money into puts betting that stock prices will decrease.

See? No problem for Wall Street whatsoever!


Actually, while undoubtedly this is true for some of the smartest, nobody believes Wall Street hype more than the average person on Wall Street. The saying should be, "you can't kid a kidder, but you'll get more from a kidder anyway because the kidder respects a good kidder."

[RagAss]

8. All my money is tied up in mattresses.

[JoePhilly]

12. The methodology for this "study" is highy suspect.

I placed the word "study" in quotes because that's what the article does with the word "ordinary".

It then shifts to something called an "ideal savers", again using quotes.

They then ignore the impact of employer match, although for this they at least indicate so.

They also make some rather odd assumptions about how a 2 income couple would invest in stock and bond funds.

They also ignore re-balancing of 401k assets over time.

And they appear to ignore the tax break afforded to 401k investments. Yes, this money will get taxed later, but presumably at a lower rate after one retires.

The article is correct that many people do not know about the fees associated with their funds. The same can be true of those who get a variable rate mortgage that is not capped.

Basically, the "study" appears to have been created to support the "plan" the authors advocate at the end.

[JDPriestly]

13. Finally. I've been saying this over and over and over.

The whole 401(K) thing is an awful idea. Should we be permitted to defer taxes on income if we save?

Yes. But we should have a lot more say and freedom with regard to how, where and in what form we save.

No one says anything about it, but one part of the boom and bust was Wall Street's counting down from the day the 401(K) contributions hit their highest peak to the day that those contributions are going to begin to be withdrawn in huge amounts.

The dot.com and housing bubbles followed the cycle. Baby boomers are not beginning to retire. Wall Street will not have their money to play around with any more -- at least not in such large quantities.

The baby boomers get blamed for a lot. It is their parents -- that "Greatest Generation" that is responsible for the sudden burst of births and the demographic bubble that has led to a lot of strange events in our economy and our society.

Think about it -- overcrowded schools in the 1950s and 1960s, the Hippie movement, rampant drug use, Yuppies drunk on consumption of consumer goods, ignorantly and naively "investing" in huge houses, in their own businesses at a time when small businesses are being drowned by politically well connected corporations, and now trusting that the money they "saved" in their 401(K)s is going to be there when they need it.

Look, Baby Boomers, you are the truly lost generation. And your money will be lost too, that is, if Wall Street gets to it first, guys.

What's more, if you fools vote for Rambo Romney . . . . you can even forget about Social Security and Medicare.

[shcrane71]

15. Yep, but try getting the money out of Wall Street now.

You'll be called a communist, and told that you're destroying the country.

[mick063]

16. This is all about interest alignment

Specifically, philosophical/political alignment between corporate America and the "middle class" work force.

If your retirement and/or life savings are linked to corporate profits, then you are more likely to adopt the philosophy of said profiteers. In other words, your retirement success is dictated by union busting, reduced operating costs (ie wages, benefits), neutard envrionmental protection and worker saftey laws, and handsome rewards for the CEO's that get the fore mentioned agenda accomplished. This is an extension of the "for the good of me" approach as opposed to the "for the good of American workers" approach.

Even Union members are buying in to the notion.

The conservative mantra is always that of "private industry can do it better than government." This mantra is the foundation to their message and only after people generally believe this not to be true, will the move toward privatization with reduced government involvement and/or regulation cease to expand.

The privatization/ corporate control of our collective retirements has been a slow, ongoing process. It started with 401K and will not stop until Social Security and Medicare are privatized as well.


Even after 2008, when most every American took a big hit to their 401k, most are still sold on the idea that corporate America is the "safe play" with retirement.

Myself, I refuse to invest in corporations. My 401k is strictly invested in 3 month US treasury bills. My revenue is reduced, but I will claim that I didn't lose money in 2008 either. On principal, I buy US Treasury bills in the same spirit as those that bought War Bonds during WW2. It is for the good of the country plus I don't trust 'em (corporate officers). They won't be happy until they steal your retirement.

[FreeJoe]

17. Yes, I do

My company uses Fidelity as a 401K provider. The funds that I have in my 401K have fees very close (slightly better than) the funds I have in my IRAs and my regular brokerage accounts. They are surprisingly low (less than 0.1% per year).

I'm very happy with our 401K. My company matches my contributions up to 6%. They match in whatever fund I choose, not company stock. My 401Ks have had their ups and downs, but they will be the bulk of my retirement.

I also have a pension plan, but I prefer the 401K for several reasons. First, our company discloses what it puts into its retirement plan. On the whole, I've done better with my investments than it has with its. Second, I think my 401K is safer than the typical pension plan because I won't lose a big chunk of it if my company goes bankrupt. Finally, it is more portable. The wealth that I have accumulated has come from the 401Ks at the various companies at which I have worked. The pensions that I earned at those companies are worth very little because I didn't stick around forever.

[airplaneman]

20. I remember looking into this many years ago.

What I noticed is that a fund that I was in on my 401K was being listed for about $5.00 less than the same fund on the open market. I also noticed that the market fund paid good dividends but the dividends were never seen on the 401K. A little logic here. They definitely make money on any sell and probably all of the dividends. Plus if they block buy on lows they make even more money. There was never any transparency showing where the difference was.
-Airplane