Your 401k: The Dream Deferred
April 19, 2009 2:02 PM
Terry and Donna McNally have suffered a 40 percent drop in the value of their 401k.
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Tranditional defined-benefits plans were guaranteed by the federal government. When 401ks came into vogue, companies encouraged the employees to buy their stock (remember Enron), so the company sold its own stock to employees, then matched the purchase to a certain amount which the company got a tax break for the expense. So the company took stock off its shelf which cost it nothing, sold it to the employee and got a tax refund for up to 70% of the value. All of which help the company's bottome line. This also helped the companies vis a vis the unions, since employees would vote against their own interest to get the company's stock price up, thereby increasing profits and share prices but cutting salaries and benefits.
When companies were sold the CEOs benefited and cashed out, not the employees. So in the era of corporate takeovers, employees lost and CEOs became rich. CEOs could easily get out of their shares, but not employees. When companies went bankrupt form loads of debt, the employees lost not the CEOs.
The law passed over the last 27 years have created a system were the rich get big benefits out of the companies, and the employees get very little. And those wonderful elected officials have been a major part of the SCAM.
See David Cay Johnston's book "Perfectly Legal' chapter 20 for a full account of how 401ks have been used as an effective tool against unions and employees and for enriching CEOs and Wall St. at everyone el