NCPA - National Center for Policy Analysis


April 29, 2009

Only one event could make the market crash of last year worse, and it is happening.  Many employers are choosing to eliminate their contributions to 401(k) plans. According to Hewitt Associates, a one-year suspension will cost a young $50,000-a-year worker $16,000 in future retirement money.  It will cost $48,000 if the employee also suspends contributions for that year, says economic columnist Scott Burns.

This follows the worst peak-to-trough decline in U.S. equities since the Great Depression, a period where many workers have seen their 401(k) accounts shrink. For instance, consider the impact of employer stock.  In the 12 months ending Feb. 28, only 12 companies in the Standard & Poor's 500 provided a positive return.  More than 200 companies lost at least half their value.  Entire industries virtually disappeared, says Burns:

  • If you worked at Bank of America, Citicorp, AIG or General Motors, the value of your company stock fell to virtually nothing.
  • Ditto, if you worked almost anywhere in the newspaper industry.
  • Shares of Gannett, the largest publisher of newspapers in America, fell 88 percent.
  • Shares of McClatchy, Media General, Lee Enterprises and Sun Times Media fell 89 percent to 95 percent.

Although employer stock as a percentage of 401(k) plan assets has dropped over the last five years, it still looms large in some plans.  And it still represents a major hazard to retirement security, says Burns.

Source: Scott Burns, "Workers face double whammy with 401(k)s," Houston Chronicle, April 28, 2009.


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