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Readers Select Top Fiduciary Stories of 2009: #10 The Death of the 401k

January 04
16:38 2010

1234594_80318828_death_401k_royalty_free_stock_xchng_300The year started poorly for investors, financiers and capitalists in general. The sudden and severe drop in equity markets and the near collapse in credit markets caused a knee-jerk reaction which edged the country to the brink of rash decisions. Nothing exemplified this more than Time Magazine’s cover story declaring the 401k dead.

Born in the 1980’s out of the dire liabilities wrought forth by corporate pension plans, the 401k marked a watershed where individuals once again had the opportunity and the responsibility to manage their own retirement. During the last two decades, many investors benefited with greater retirement assets than they would have normally earned via traditional defined benefit plans. But a combination of aggressive marketing, perhaps misguided government guidance and just plain bad luck left many near-retirees on the lurch in the spring of 2009. Making matters worse, the free money of company matching evaporated as many firms, hurt by the recession, stopped answering employee contributions. Studies now reveal disheartened employees then reduced their participation in their own retirement plans. (“401(k) Plans That Suspended Their Matching Contribution Experienced Declines In Participation And Deferral Rates,” CCH Pension)

For many at the nadir of the markets in March of 2009, the world as they had known it had ended. They dejectedly considered ceding their own hard earned individual rights to some larger institution – whether government (most likely) or corporate. But, then, something happened. Something strange. Something wonderful. Something unexpected. Something totally natural for those of us accustomed to the phrase “regression towards the mean.”

By the end of the year, we discovered the world did not end as expected. Many companies had reinstituted their matching programs and rising markets lifted 401k assets. It turns out, the only real losers were those who threw in the towel prematurely reminding us all that yes, Annie, the sun will come up tomorrow.

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Christopher Carosa, CTFA

Christopher Carosa, CTFA

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