Financial Answers "IN SIMPLE LANGUAGE"

 

The plan to “fix” the current 401k program is not going to go away.  And it probably shouldn’t.  Maybe this time the government will get it right.  Right!

 

Guarantees

 

Anyone who is a financial advisor is not allowed to use the word guarantee in any of the investments that they are recommending.  And as we have seen in the last year, no investment is really guaranteed.  Even United States Treasuries which are guaranteed by the U. S. Government are not really guaranteed.  What would happen if the United States Government collapsed?  Is that such a long shot considering what we have gone through and still going through?

 

Yes I know I am stretching a little with that statement. However, just like all of our “guaranteed” pensions in the past and the biggest and strongest-at least at one time-company in the world, General Motors is stumbling and tumbling towards bankruptcy.  The only thing we are guaranteed is our own permanent dirt nap.  Let’s make the best of everything else.

 

So I am still going to feel a little reluctant to believe the proposed meaning of the word guarantee.  The world has become too global to attach the old meaning of guarantee to mean that you can’t lose.

 

Uncle Sam to the Rescue Again

 

As I stated in several blog posts this month and last, I really believe the 401k program does work.  It just needs to be tweaked a little rather than drastically changed or eliminated all together.  It is still better then the defined benefit plans that our parents were stuck with.

 

Having choices, such as what the 401k gives you, is always better than being told this is what you get whether it meets your needs or not.

 

Because of the huge drop in values of most 401k plans, J. Mark Iwry, the Deputy Assistant Treasury Secretary for Retirement and Health Policy-how would you like to have that title?-is leading the charge to fix the 401k system.  Mr. Iwry, along with other top retirement specialists, is joining forces to come up with ideas that will fix the current 401k program.

 

One of the fixes that these experts are contemplating is the inclusion of a guaranteed income account as part of a person’s 401k plan.  Now this is not such a bad idea since it is estimated that almost $2 Trillion ($2,000,000,000,000)-yes that’s trillion with twelve zeros after the two-was lost in 401k plans over the last year.

 

So Let’s Fix It

 

The part of this 401k fix that has me concerned is the retirement experts involved are talking about using an annuity as the part of the guaranteed income account in the 401k.  Now there is nothing inherently wrong with an annuity which is usually issued by insurance companies.  We all know what has happened with the insurance companies that were involved in the subprime mess this past year.  Case in point is one of our all time favorite companies, AIG (Arrogant International Group) which is an insurance company.

 

So what I want these retirement experts to remember is if you are going to use an annuity as part of someone’s 401k guaranteed income account than the least you should do is make sure it is guaranteed by the U.S. Government and not an insurance company.

 

One of the worst things that could happen is to have someone relying on the guaranteed portion of their 401k program only to find out that the company guaranteeing it is in bankruptcy.

 

So my suggestion to all of you retirement experts that are involved in this “fix the 401k” project is make sure that the 401k and its fixes are “really” going to help protect and benefit all 401k plan participants.  And maybe have a review committee that will look at the rules and regulations governing 401k plans, say every five years or so, that will keep the 401k programs current and continuously working in favor of its participants.

 

If you have any ideas about fixing our current 401k program make a comment and let’s talk about it.  It’s not going to fix itself so here is a chance to at least air your views on what you think should be done with the 401k program.

 

Maybe if we get enough good ideas we can forward them on to the brain trust in Washington so they can get it right this time.  So what are you waiting for?  Send me your good ideas.

 

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