A final obituary for the 401k?

The new buzzword is "statement shock", a term being tossed around with casual abandon these days in personal finance columns on the internet as 401k investors across the country open up their quarterly statements and gape in disbelief.

Reports of a precipitous decline in participation rates over the last year after the results produced by the conventional wisdom that has aspiring retirees continuing to plow more money into declining stock mutual funds seem to be well founded and set to accelerate.

Some are calling this the "death knell" for 401k plans or, as is the case below, the "final obituary" for these plans as an entire generation comes to grips with the reality of being a stock investor in the middle of a stock bear market.

This Wall Street Journal article($) that also conveniently appears at Yahoo! Finance has all the details:

The market downturn has wreaked havoc on workers' retirement savings and raised more questions about 401(k) plans, which were already under intense scrutiny.

This year through Thursday, the average 401(k) account balance dropped roughly 19% to 25%, depending on the participant's age and tenure with the plan, according to Employee Benefit Research Institute.
The downturn comes at a time when regulators and lawmakers were already taking a hard look at 401(k) plans. Major pension legislation passed in 2006 encouraged employers to automatically enroll workers in 401(k)s to help get retirement savings on track.
...
Some retirement-plan experts see current market conditions dealing a decisive blow to 401(k)s. Teresa Ghilarducci, professor of economic policy at the New School for Social Research, calls the downturn "a final obituary" for these plans. She adds, "Even with all the financial education in the world, [workers] can't control how old they'll be when there's a financial downturn."

There's a bit more detail in the WSJ story about the dire consequences of poor choices made by plan participants and this report in the Washington Post is worth a look as well (actually, the WaPo article is quite good and comes with a photo of a distraught Homer Simpson doll on the floor of a stock exchange).

The 2006 legislation that resulted in automatic enrollment wasn't such a bad idea, but legislators may rue they day they made the default option stocks instead of stable value funds or money market funds.

I suppose this is all just part of the "ownership society" that has been in the process of tumbling down all around us over the last year or two.

The whole concept of having individuals manage their own retirement accounts always seemed to be fundamentally flawed except in rare cases where individuals choose to spend about half of their waking hours reading and writing about these things.

Even then you don't always get the results you desire.

ooo

This week's cartoon from The Economist: