2008-12-05 / Columnists

It's My Turn

401K: Where Is My Money?
By Angelo Guarino

"He who doesn't learn from the past, will live in the past." That was my grandma's adage. First of all, let me tell you that I am not a Republican or a Democrat; nor a rich or a poor guy. I am a "Q Man" from the street, retired, living a quiet life with my wife of 61 years. I have been voting for the last fifty years. I never voted for the party. I vote for the man/ woman whom I think is qualified to run our country effectively and honestly. The facts and data reported herein have been obtained from sources deemed reliable. In 2005 the financial world witnessed a series of big scandals. The main ones were Enron Corp. and Tyco Inter., both guilty of mismanagement and greed by their CEOs.

At Enron Corp. the main culprits were Ken Lay and Jeff Skilling, both guilty of mismanagement and greed. Mr. Lay died before being sentenced; Mr. Skilling received a sentence of 24 years in jail. There were at least another dozen executives, with lesser charges, that drew one to three years in jail.

An ironic twist. Worried about the standing of the company, the employees asked for a town hall meeting. There, the top brass assured them of the company's good standing, of the security of their jobs and the safety of their 401k retirement plans. This was at 10 p.m. The next morning, the employees found the company's door closed. They had bankrupted the company. This is only ten hours after they made those assurances.

Tyco International is the other corporation that went bankrupt due to mismanagement and greed of its CEO. Mr. Dennis Kozlowski was found guilty of illegal appropriations, mismanagement, extravagant parties at the expense of the company, and greed. He was also guilty of 150 million dollars in unauthorized bonuses and fraud against the company's shareholders for an amount of more than 400 million dollars. For his crime, on June 2005, Dennis Kozlowski was sentenced to 8 ½ to 25 years in jail. Kozlowski became notorious for his extravagant lifestyle, some of it at the company's expense. Due to the shortage of space, I am going to report only a few of them. He purchased several acres in the private gate community, "The Santuary," in Boca Raton. Allegedly the company paid for his 30 million dollar apartment in New York City, which included a six thousand dollar shower curtain. The well-known "Tyco Roman Orgy," the party given for his wife, Karen's 40th birthday. It was held on the island of Sardinia, featuring an ice sculpture of David urinating Stolichnaya vodka. Cost of the party was two million dollars for which Tyco International paid one half the bill, one million dollars.

I would like to know what we have learned from those terrible financial occurrences. What have our representatives done to avoid a similar financial disaster? I tell you what they have done: nothing, niente, nada, rien, gurnischt. Today, three years after the shameful, disgraced disaster of Enron Corp. and Tyco International, we have a financial disaster, this time of global size. Like three years ago, many CEOs have bankrupted their companies, but not their own finances.

As we know, one of the factors and perhaps the main one, for the recent financial crush has been the mismanagement and the greed of many CEOs of the investment companies. Mr. Henry Paulson, racked up over 230 million dollars as salary and bonus during his tenure as Chairman and Chief Executive Officer of Goldman Sachs. Now as a Secretary of the Treasury, he is in charge of the bailout of 700 billion dollars to fix the system. His predecessor, John Snow, Chairman and Chief Executive Officer of CSX Corp., took 25 million dollars as a bonus only days before the company went bankrupt. Joe Cassano, former head of AIG's financial products division, took in 280 million in eight years. When he was fired, because his company lost 11 billion, he continued consulting for the company for one million a month. Mr. Richard Fuld, collected over 500 million dollars, as a salary and bonus, for his tenure as CEO of the bankrupted Lehman Brothers. In September, four days before it went bankrupt, as he was pleading for a federal rescue, the bank's compensation committee recommended giving three departing executives more than 20 million in golden parachutes. They are only a few of the many CEOs that bankrupted their company and got away with millions of dollars. The vultures are too many to be mentioned here. I know playing the market is a dangerous game. The old, but wise adage goes that if you are not ready to lose, "DON'T PLAY THE MARKET." Put your money in a fixed account and go to sleep. But losing money for mismanagement and the greed of the CEOs is painful, a bitter pill to swallow.

The 2007 statistics tell us that Wall Street dispensed over 267 billion dollars in bonus. That is a lot of hay to give way, especially to executives that bankrupted their companies.

According to my humble opinion, another reason for the recent crash is the Affordable Housing's relaxing rule to obtain a mortgage. The new rule was to enable the low income people to achieve the "American Dream," a little house of their own. Every day and night we were bombarded with "borrow 500,000 dollars, no income check, you have bad credit, no problem." What they didn't tell us was, "you don't pay, we will take your house." The banks didn't care about you being foreclosed, they, eventually, will be bailed out by Uncle Sam. The builders, sellers didn't care, they got their exorbitant profit; the brokers, hey, they would never tell you, "oh no, don't buy this house, you are going to lose it." So what was enacted to help the low income people, turned out to be a nightmare, a suicide for them. It was more painful to lose their dream house than not to have bought it in the first place. It was only yesterday that I read that when the marshals knocked down the door to seize her house, they found the lady with a bullet in her head. The smoking gun was still in her hand. She lost her life for the American Dream. In an interview with Maria Bartiromo in Business Week, when asked what he would have done, Paul O'Neill, the former Secretary of the Treasury, summarized it this way: "One thing I would do, for example, on the home ownership front is make it illegal for anyone to give or take a mortgage without a 20 percent down payment so we'd always have a cushion between disaster and ongoing mortgage payment." In my time the cardinal rule to obtain a mortgage was 30 percent. We never incurred a foreclosure. The American Dream was safe.

The main topic of this letter is the 401k, the volunteer "Retirement Savings Plan" established by the US tax code in 1978 under the supervision of the Internal Revenue Service. This plan is founded on employee contributions and (often) matching contributions from the employers. The structure of the plan is a very complicated one, but its main reason is very simple: to have a golden nest egg at retirement. The law is very explicit and clear in this case, TO HAVE A GOLDEN NEST EGG AT RETIRMENT AGE.

When are we going to learn from the past? How many more 401k must we lose? How many more people must be pushed to the welfare line before we change the unrealistic, the derisive rules that govern the 401k now? These rules are in contrast with the original meaning of the 401k, that is a Retirement Savings Fund for old age.

The 401k, Retirement Savings Fund, was created with my money, like the Social Security, for a golden nest egg for my retirement age. It was never intended to be a fund coupled with the financial adventure of the company or with Wall Street "see-saw." If a CEO wants to gamble, let him gamble with his own money, not with my hard earned money. The 401k was not meant to vanish when, for the negligence and greed of a CEO, the company goes bankrupt, as in the case of Enron, or all the 401k will vanish when Wall Street crumbles. According to statistics, two trillion dollars in 401k plans have vanished within three days, due to mismanagement and greed of a few CEOs. Where did my money go? Where is my Retirement Savings Fund accumulated over the years with the sweat of my brow? Where are my representatives, the ones we elected to safeguard us? As a citizen of this great country, I demand that our representatives look into the matter of 401k and change the present rules. They must make sure that it remains as it was intended at its inception, a Retirement Savings Plan, a golden nest egg for our retirement age, regardless of a company's bankruptcy or Wall Street's collapse.

As said before, the bailout of 700 million dollars is not my cup of tea. I am not a financial adviser, but, today, I think it is appropriate to mention another of my grandmother's adages that goes, "When parents do too much for their children, the children don't do much for themselves."

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