Nebraska Sees Red Over Its Plans
By K.C. Swanson Staff Reporter 05/07/2002 08:31 AM EDT
Chalk up one another big black mark against the beleaguered 401(k). After 38 years, the state of Nebraska has recently jettisoned its version of the retirement plan, judging it a failure.
It's too early to gauge the reverberations from the Nebraska decision. But it could mark the quiet beginnings of a backlash against the notion, popularized over the past decade, that ordinary Americans should put on money manager hats and assume responsibility for their retirement security.
The Nebraska case shows the disastrous results of letting people manage their own retirement funds over the long term. The state began letting workers opt out of its traditional pension plan to invest in a defined-contribution plan back in 1964. By comparison, most company 401(k) plans have been in existence only since the 1990s. Until recently, a booming stock market has helped camouflage their flaws.
In the wake of nearly four decades' experience with the plans, Nebraska's decision offers proof that the average employee lacks the knowledge -- and perhaps just as important, the interest -- necessary to invest for retirement on their own. A state study conducted in 2000 found that over 30 years, the typical worker posted an average annual return of 6% to 7%. By comparison, money managers running the state's old-fashioned defined benefit plan boasted average returns of 11%.
[http://www.thestreet.com/funds/belowradar/10021041.html]
Carl
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