Workers steered to high-risk investing-Federal rule imposed just before market crash

[kpete]

Source: Boston Globe

Workers steered to high-risk investing
Federal rule imposed just before market crash
By Michael Kranish
Globe Staff / April 5, 2009

WASHINGTON - Shortly before the first signs of the stock market collapse, the Bush administration made a crucial decision that has propelled an estimated one to two million workers into stock-heavy retirement funds.

Many of the funds in which workers were automatically enrolled dropped more than 25 percent last year, while a more conservative investment strategy rejected by the Bush administration would have resulted in a gain of 4.7 percent.

The administration's decisions came in response to a congressional mandate to encourage more workers to participate in company-sponsored retirement savings plans. The Bush administration came up with a rule that enabled businesses to automatically enroll their workers in tax-free 401(k) retirement plans.

If the workers failed to specify how they wanted their money invested, the company would be required by law to place their retirement money in investment funds that, for the most part, relied heavily on stocks. The administration specifically rejected calls for a more conservative investment option.


Read more: http://www.boston.com/business/personalfinance/articles/2009/04/05/workers_steered_to_high_risk_investing/

[Webster Green]

1. Good thing he didn't get his grubby mitts on our social security..

Bad chimp! :thumbsdown:

[deminks]

2. K&R

They took our retirement, they took our jobs, they took our homes, and they made damn sure we had no recourse.

[w4rma]

3. That about sums up his economic policy: Divert everything he could to the sharks on Wall Street.(nt)

[high density]

4. If you're talking about a 40 year timeframe, heavy on stocks is generally not bad advice

What would the Boston Globe be saying if the market instead went up 25% and the "conservative" option went up 4.7%?

I work for a firm that automatically puts employees into target date funds and I think it is a good idea. These funds automatically get more conservative as 'retirement' approaches, though I agree the funds are often more tilted toward the stock market than some people may want. People can thank the 2002-2006 market for this, since fund managers knew people were buying funds based on past returns and funds with high equity allocations fared the best on Morningstar.com, etc.

It doesn't take a rocket scientist to log on to a 401k account and change the asset allocation to a bond or stable value fund if that is what the employee desires.

[rfranklin]

5. That's about what it took to break even after the last depression...

Unfortunately, I don't have that long.

[Gormy Cuss]

8. The problem is automatic enrollment.

That's basically forcing people with no interest or no knowledge to play. As for youor rocket scientist comment, some of those same people a)don't log on to anything and b)would need a trained advisor or course to understand the different sorts of investments and how to make the right allocation for their personal needs. When the amount of cash is small, as it often is with automatically enrolled employees, it's hardly worth the effort to look beyond the default allocation made by the employer.

[bluesmail]

6. In reality they did get our SS. Think about the bailout money. Now think

SS. I'm not familiar with total amounts between them, but I'd say they did get our SS, one way or another. They won, them "Masters of the universe."

[pmorlan1]

7. Looking Out for #1

They were probably trying to prop up the economy just long enough to get Bush out of office so they could say the collapse didn't happen on his watch.

[DemReadingDU]

9. 60 minutes: 4/19/09 Retirement Dreams Disappear With 401(k)s

4/19/09 Retirement Dreams Disappear With 401(k)s
60 Minutes: Older Americans' 401(k)s Have Plummeted; Many Fear They Will Never Get To Retire

4/19/09 Retirement Dreams Disappear With 401(k)s
60 Minutes: Older Americans' 401(k)s Have Plummeted; Many Fear They Will Never Get To Retire

60 Minutes wanted to ask Wray, who's been so bullish on 401(k) plans, one last question about what the future holds for people like Terry and Donna McNally and Kathleen Coleman.

"Most of the people that we've talked to are 50 and 60 years old and have sustained these losses say there is no way they're ever gonna make them back. Do you agree with that?" Kroft asked.

"I think we have to be truth tellers," Wray replied. "I think that when a person has hit this point, and we've had this unfortunate situation, I don't think we can misrepresent what the possibilities are."

"And reality is that money's not coming back that they've lost," Kroft said.

"They can't count on it," Wray replied. "They have to…it may. Maybe they have long, maybe if they work ten more years, it'll come back by the…but it's important that they not have unrealistic expectations."

more...
http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=389x5491740
http://www.cbsnews.com/stories/2009/04/17/60minutes/main4951968.shtml