May 22nd, 2008
Do Over? The Scary Prospect of West Virginia Teachers and 401(k)s
I firmly believe that the 401(k) and its equivalents are among the absolute best financial savings vehicles to come along ever. However, not everyone agrees with me, possibly including teachers in West Virginia.
According to this CNNMoney.com article, West Virginia teachers essentially got to vote on a “do over” decision for whether they want a 401(k) type plan or a traditional pension. Like the corporate world, some municipalities have gone away from the traditional pension system (which is very expensive for the employer) and to a 401(k) or similar system. The positive side of this is that the 401(k) is a great system for both the employer and the employee; the negative side is so many employees don’t use their 401(k) to maximum effect [and there is also the very real possibility that the custodians of the 401(k) are offering the kind of options that make the most sense in their plans--like no load, low expense, passively managed index funds].
Apparently, many of the teachers in the 401(k) style plan have not done very well with their savings and are now asking for a return to the traditional pension plan, which was voted on earlier this month. There is some feeling that the options offered in their plan were less than optimal and teachers were steered into them. Sadly, this points out a huge issue not just with 401(k)s, but personal finance in this country in general–even college educated professionals don’t necessarily make decent decisions about money.
Another issue is that if this happens, the bill will be footed by–yes, you guessed it–taxpayers. This is one of those things that couldn’t happen in the private sector, but could in the public sector.
This situation bears watching.
[...] Original post by Uncommon Cents [...]