Your 401(k) May be Worthless

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Employees are becoming bitter because they're watching their 401(k) balances fall. Who can blame them? The defined contribution plan is failing them and some employers have even suspended their monthly contributions.

Employees' retirement plans are in a grim state now.

The 401(k) plan has risen to prominence during the 1980s where companies use it as a way to offer retirement benefits to their employees without taking a fully-funded pension plan. Employees are setting aside pre-tax dollars and employers would typically match those contributions up to a certain percentage.

Employees can choose where they can invest their money (usually from a menu created by the employers). And everyone was riding high for a while until trouble came.

First of all, employees’ 401(k) plans are holding too much company stock, which came out during the Enron mess. Then, there were employee lawsuits in 2006 that are aimed toward their employers. And now, the credit and stock market crisis last year came to the fore.

According to Hewitt Associates study, Median 401(k) investors lost 28.3% of their account’s value last year – this was before Dow Jones Industrial Average has dumped an additional 25% in 2009’s first quarter. Some of this came back, but when employees thought that they must be investing more, several big-name employers (Cincinnati Bell, Frontier Airlines, Boise Cascade, General Motors, etc.) suspended their contribution programs to match the workers’ investment.

And to add insult to injury, many employees contributing to their 401(k) plans found out that the mutual fund they placed their money in was not as safe as they thought. They realized this when the funds can’t sell enough assets to provide cash for them when they want their money back.

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Your 401(k) May be Worthless

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