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Open a Book, Then Dare to Open That 4001(k) Envelope

By: Fred Brock
New York Times, August 4, 2002

If you're contemplating retirement, or are already there, chances are you're steamed over the corporate chicanery that has helped to shrink the assets in your 401(k) plan or your stock portfolio.

So, as you head to the beach or the mountains this summer, haunted by the thought of diminished accounts, three new books are worth considering:

• "The Great 401(k) Hoax: Why Your Family's Financial Security Is at Risk and What You Can Do About It" (Perseus Publishing, $26), by William Wolman and Anne Colamosca.

• "Take Control With Your 401(k): An Employee's Guide to Maximizing Your Investments" (Dearborn Trade Publishing, $18.95), by David L. Wray.

• "The Bear-Proof Investor: Prospering Safely in Any Market" (Henry Holt, $14), by John F. Wasik.

"The Great 401(k) Hoax" is guaranteed to stoke your ire. It's a scathing attack on the idea, much ballyhooed by Wall Street, that 401(k) plans that link workers' retirement well-being to the stock market are an easy way to amass wealth.

The authors remind us that 401(k)'s, also known as defined-contribution plans, were created to replace traditional defined-benefit pension plans. The prime goal, they say, was not to help or enrich workers but rather to relieve corporations of the expense and responsibility of funding and maintaining traditional pensions that are protected under federal law.

Companies may or may not match their employees' 401(k) contributions. But if they do, they can save money by matching with their stock — never mind the financial risk to employees, as witnessed at Enron. When employees retire, they take their 401(k) money and that's that; a company has no pesky long-term commitments to its retirees. All of this is great for the bottom line.

But is it good for workers? Not necessarily, Mr. Wolman and Ms. Colamosca argue, especially for those at the lower end of the salary scale. They cite research showing that the average 401(k) account shrank to $49,024 in 2000 from $55,502 in 1999. But they say these figures look better than the reality because the averages include the 401(k) plans of top earners.

A more telling figure, they say, is the median 401(k) account, with half above and half below. That figure was $13,493 in 2000, down from $15,246 in 1999. These numbers do not point to fat retirement years.

Ultimately, the authors say, many lower-paid workers are simply unable to save enough in 401(k) plans to give them sufficient money for retirement, especially if the stock market is in a long-term downturn. Privatizing Social Security would make the situation even worse, they assert, turning a sure thing into a stock market bet. The authors project that stock returns during the next two decades, adjusted for inflation, will be just 1.9 percent.

"Our analysis strongly suggests that the great bull market that saw the Dow Jones industrial average quintuple between the end of the cold war in the summer of 1989 and mid-July 1999 will be followed by a stock market slump that could last for two decades and could financially devastate the unprepared family," the authors write. "This is what history suggests."

What do they think we should do? For starters, they call for workers to have unrestricted investment choices for their 401(k) plans. They also think company matches should be in cold cash, not stock. They urge workers to shift investment to fixed-income securities.

"Take Control With Your 401(k)" does not take issue with the concept. After all, its author is president of the Profit Sharing/401(k) Council of America. But it does offer practical advice for managing your 401(k) retirement account and exercising your choices.The book clearly explains the details, rules and terms, from opening an account to cashing out.

"The Bear-Proof Investor" offers the kind of sound, general advice that readers have come to expect from Mr. Wasik, the author of nine books who is also a retirement-planning columnist for Bloomberg News. He advocates diversification and a balanced approach to risk. It's not exciting stuff, but it's like the spinach you had to eat as a child. It's probably good for you.

If you've had it with stocks for a while, here are a couple of other new books to consider:

• "301 Ways to Make RV Travel Safer, Easier, and More Fun" (Arbor House Publishing, $16.95), by Bernice Beard. Whether the current surge in sales and rentals of recreational vehicles will continue is anyone's guess, given the market's tribulations. But whatever happens, Ms. Beard's latest book on motor-home adventure is full of practical tips.

The chapter on the logistics of dealing with phones and mail while on the road is especially useful, as is the list of recommended campgrounds. But I have my doubts about the recipe for microwave rice pudding.

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