Guest Editorial: My 401k Dilemma

(Editor’s Note: Jerry Robinson will be traveling to speak on the economic crisis until early next week. He will return to with daily column on Tuesday, May 3. In Jerry’s absence, FTMDaily.com friend, Marcus Curtis, will fill in with his personal financial insights. Marcus has been a student of our Five Levels of Financial Freedom for the last two years.)

by Marcus Curtis | FTMDaily Contributing Writer

TULSA, OK , May 2 – I remember reporting to work for the first day on my new job in 1991. Shortly after that first day I was sent to an orientation. In this orientation, they began to talk about the miracle of compound interest. At the time, I really did not know what I was doing. I signed up to the 401k plan and chose from eight fund types. I had to pick where my contribution was going. There were a few stock funds and a few bond funds. Everything was labeled low risk, medium risk, and high risk. For every dollar I put in, the company would match 50 cents. That was an immediate return on my investment. Good deal, right?

Just a few years later we negotiated a new work contract. Now we got a dollar for dollar match on the 401k, up to 7 percent. My thinking was to invest 7 percent and get the full dollar return. In addition to this, the company had a profit sharing account. Every year we would get a contribution, as long as we made a profit. The money was put into a separate account and it was subject to the same rules as the 401k account. I had to pick the funds for the profit sharing money as well.

Over the next 17 years, I accumulated very healthy 401k and profit sharing accounts. I got to a point where most of my retirement goals were met. I was even going to exceed some goals. There were a tremendous amount of rules that governed these accounts. I could not just put the contributions into any fund in the stock market or the bond market. I could only place it in the funds from the list that the company provided. I did not have access to this money. The only way I could get the funds was to quit my job. I could take a loan out against the funds, but that would affect how much money my funds would earn. It got to the point where the interest earned was greater than my contributions. I really did not care about the rules that were placed on the 401k and the profit sharing accounts, because I was making money and everything was fine.

In 2008, our country went through a major financial meltdown. I stood there and watched 17 years of savings diminish. Half of my 401k was gone and my retirement plans went out the window. In September of 2008, I stopped my 401k contributions. At that point, I thought I was going to lose everything and I did not want to put money into a sinking hole. The main problem I experienced was that I could not put my money into the funds that were doing well. I did not have access to commodity funds like oil, gold, and silver. Even the low risk funds were taking a beating. I was powerless to stop my wealth reduction. The rules handcuffed me from taking any action. I could not even close my accounts and roll the money over to a Roth IRA. I had to quit my job to gain access to the funds.

I realized that some other plan was needed. The company decided to increase the number of funds available to us, so now we were up to fifteen funds. Some mutual funds were removed and others were added. I just thank God that I did not have any money in Merrill Lynch. Those poor people lost so much. It would take me three years of closely monitoring funds and transferring money to regain just a portion of what I had lost. There were a whole new set of rules attached to the 401k accounts. Some funds stated that if you withdrew money and stopped contributing, you had to wait 30 days before you could transfer money back into that fund. Each fund had its own set of rules.

For these reasons, in 2008 I started to invest outside of my 401k and profit sharing accounts. It seems that having one iron in the fire was not a wise thing to do. The rules that tied my hands made it very hard to regain anything that was lost. I needed more control over my money and my accounts. I started buying precious metals and foreign currency. I started saving money. And for the first time, I started to do something about my debt. I put principles in place that I learned from Jerry and other people. I took a crash course in economics. I was reading book after book, and visiting many websites. I took control of my own financial education. The funny thing is, I hate money. I don’t like the fact that we need it in today’s world for anything. But, even more, I don’t like being robbed of my hard-earned wealth. It was high time I took responsibility for my financial well-being. For the sake of my family, this needed to be done.

I never went back to contributing to my 401k. Today I just manage the funds that are still within it. I thought about contributing once again, until I discovered what was going through Congress in the fall of 2010. According to the Republicans, the Democrats were targeting private retirement accounts like 401ks, 401bs, and IRA’s. Teresa Ghilarducci, Professor of Economic Policy Analysis at the New School for Social Research in New York, had come up with a plan. She proposed that the government eliminate tax breaks for 401ks and similar retirement accounts such as IRAs, confiscate workers’ retirement plan accounts, and convert them to universal Guaranteed Retirement Accounts (GRAs), managed by the Social Security Administration. Democrats held hearings on this in 2008 and now in 2010 she had the ear of two Senators. She was quickly dubbed the most dangerous woman in America.

http://en.wikipedia.org/wiki/Teresa_Ghilarducci

I have read information that says Europe is considering the same approach. One article has even said Europe started to confiscate private pension funds.

http://washingtonexaminer.com/blogs/beltway-confidential/2011/01/europe-starts-confiscating-private-pension-funds#ixzz1A29z89gc

The basics of Ghilarducci’s plan are that employees would make mandatory contributions equal to at least 5 percent of their earnings. Those contributions would be offset by a $600 federal tax credit per year. The Social Security Administration would handle account management for GRA’s. The tax code would change regarding 401ks, IRAs, 401bs, and pensions. The tax breaks would no longer be allowed for these plans. Participation is voluntary. Hmm, where have I heard that before?

First and foremost, everyone knows the bankrupt state of Social Security. I could see combined legislation as a plan to “save Social Security and secure your retirement”. The only problem is Congress will spend the money going into these accounts, much like Congress spent most of the money going into the Social Security system. Would my family receive the money I contributed if I died? This is not even talked about. This is not a solution to the problem.

You think it can’t happen here? Fast forward two years from the hearings in 2008 to 2010. You have Democratic Senator Tom Hawkins from Iowa and Independent Representative Bernard Sanders of Vermont through Health, Education, Labor, and Pensions (HELP) considering details of this plan. Ghilarducci has some backing for this plan in Washington and that is scary.

Republicans have jumped on this and said that the Democrats, under this plan, want to confiscate your 401k but, as awful as all this sounds, confiscating 401k accounts and converting them to GRAs is not part of her plan, at least not for now. In the short term, this would be voluntary. What about long term? Herein lies the problem. There is just no way to preclude the possibility of a forcible conversion of 401ks to GRAs. Have we learned anything from history? Talk emerged from the Republicans that this was on the books in the lame duck session of 2010. It was never really brought to the floor of the House or the Senate. My guess is there was not enough support.

This is reason enough for me to stay far away from contributing any more money into my 401k. As long as people in Washington are salivating over my retirement accounts, I will not contribute one more dime! I would rather buy silver, gold, and other commodities. I would rather be in control of my own retirement. The last thing I want to do is to depend on the government for anything!

About Marcus Curtis

Marcus Curtis is a FTMDaily guest writer. He is the founder of IraqCurrencyWatch, a blog dedicated to following the developments in the political and economic developments in Iraq.

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About FTMDaily.com

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