Time for a new 401K?

A popular way for workers to save for retirement is through 401K plans, but with the drop in the stock market during the recession many people lost a lot of money in their 401K, which prompting the joke that their 401K was now a 201K. Should there be changes to this retirement program? N.C. State University economist Mike Walden discusses debate surrounding this issue.

“There are some people … who are saying, ‘Yes, we do need a change — and particularly in how 401K money is invested.’ Right now people have a lot of control over that money, where that money goes. They can put it in safe CD-like investments, or they can put it in the stock market. Obviously people who put it in the stock market over the last few years — especially when we had the big downturn — lost a bunch of money.

“There are some who say we need to tighten up on where people can invest that money. And in fact really the extreme of this is to limit people in terms of investing that 401K money into one area, and that is in an insured government fund that however pays a rather modest interest rate of 2 or 3 percent.

“And people say, ‘Look, that means that folks will … know they are never going to lose money. Yeah, the money is not going to grow very fast, but on the other hand it won’t go down very much. People can be assured that this is going to be a safe secure way to build up funds for their retirement.’

“Again, though, what you do is you are taking away choice. For those people who say, ‘Well, I know how to manage my 401K money: I put some in the stock market; some, other places. You take that away.’ But this is an idea that is getting some serious consideration.”