[Marxism] LA Times-"The failure of our 401(k)s"

["johnaimani" <johnaimani@xxxxxxxxxxxxx>]

http://www.latimes.com/news/printedition/opinion/la-oe-rutten10-2009jan10,0,4978616.column

>From the Los Angeles Times
Opinion
The failure of our 401(k)s
The accounts were never meant to entirely fund retirements, and the financial 
crisis has hit many hard.
Tim Rutten

January 10, 2009

As President-elect Barack Obama and lawmakers attempt to reach agreement on 
what sort of stimulus package has the best chance of arresting America's 
economic free fall, the enormity of the immediate crisis naturally pushes any 
issue that can be deferred to the margin.

As a consequence, there's been little discussion of the way in which this 
economic implosion has exposed the utter failure of the now-ubiquitous 401(k) 
retirement accounts. In fact, the entire 401(k) system looks increasingly like 
the sort of bait-and-switch con relished by the Bernie Madoff's of the world.

As Robyn Credico, a leading consultant on pensions, told the Wall Street 
Journal this week, "This is the biggest test that the 401(k) plan has seen to 
date, and it has failed."

Here's the problem: In 1978, when Congress amended the Internal Revenue Code to 
include Section 401(k), it envisioned the provision mainly as a way for workers 
to supplement their companies' traditional defined-benefit pension plans and 
Social Security. (Secondarily, it also was a nifty hideaway where highly paid 
executives could shelter income from taxes.)

Nobody at the time envisioned the 401(k) as something on which people would 
rely for their retirement.

But in the years that followed, more and more employers began to look for ways 
to get out of funding the pension and health plans that, up to then, had been 
regarded as part of the responsible capitalist social contract. Two innovations 
in political ideology -- one on the left and one on the right -- provided 
superb cover for the companies' greed.

For the Democrats, "choice" became a mantra, and the 401(k) suddenly became a 
mechanism through which working people could "choose" how to fund and manage 
their own retirement. On the Republican side, the notion of "an ownership 
society" came into vogue. There, the theory was that giving working people an 
ownership interest in the equities market would promote greater personal 
responsibility and make people better citizens.

Nobody bothered to ask employees whether they wanted to swap their pensions for 
choice or ownership, nor did anybody stop to notice that very few people are 
suited by background, ability or temperament to actively manage investments.

If there is such a thing as lethal social poison, it is avarice cloaked in 
political piety.

Companies seized the opportunity to abandon their defined-benefit pension 
plans. Today, more than 60% of all U.S. workers rely on 401(k)s as their 
primary retirement fund. They're not eager to "choose" their own retirement 
program, nor are they enthusiastic "owners" of American business. They're 
draftees. Essentially, millions of us have been conscripted into the equities 
markets, where we have helped fuel stock prices and provided a bonanza for the 
financial services companies that manage and sell investment funds.

The problem is that, since the markets' peak in October 2007, our 401(k)s have 
lost a collective $1 trillion in value. That's fully a third of the value of 
all 401(k)s. The picture is actually worse than that because another $1 
trillion has been stripped from people who lost or changed jobs and rolled 
their 401(k)s into individual retirement accounts.

Those are the most obvious losses. Look a little closer and the picture is even 
bleaker: According to a study by the American Assn. of Retired People, 20% of 
American workers have been forced to stop contributing to their 401(k)s and 
individual retirement accounts by economic hardship.

Millions of others have been forced to make early, so-called hardship 
withdrawals from their accounts because they've lost their jobs or healthcare 
or are facing foreclosure. The 10% early withdrawal penalty is a catastrophic 
expense in such a context. Millions more have taken loans from their 401(k)s to 
meet pressing debts or expenses, like college tuitions. Not only are those 
workers missing out on any available appreciation in their investment, but -- 
in a time of rising unemployment -- they're running a terrible risk. If you 
lose your job, you must immediately repay the entire balance on any outstanding 
loan from your 401(k). If you can't, you're liable not only for income tax on 
the unpaid balance but also the additional 10% penalty for early withdrawal 
from the 401(k).

With many economists predicting unemployment at 9% to 10% by the end of 2009 -- 
welcome to hard times.

Finally, consider this: The collapse of the 401(k) experiment is occurring just 
as the baby boom generation begins to retire in significant numbers. Welcome to 
hard times, indeed.

timothy.rutten@xxxxxxxxxxx 
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