THE meltdown in the financial industry isnâ€™t merely a housing story populated by panicked home owners. Near retireesâ€™ and retireesâ€™ lives have been turned upside down, too, as their risky 401(k) savings accounts erode.
Itâ€™s too bad that, in their plan to bail out investment firms, Treasury Secretary Henry Paulson and the Federal Reserve chairman, Ben Bernanke, do not address the problems of older workers and retirees. The Treasury-Federal Reserve proposal should give not only investment banks but also retirees and those close to retirement the option to clear the junk â€” bad mortgage-based securities and their derivatives â€” out of their 401(k) accounts and invest in government-guaranteed bonds.
Then, once the current losses are stemmed, the federal government should protect Americans from further risks to the savings they set aside for their old age by creating a more secure system of investments for retirement accounts.
For the past 20 years, traditional pension plans, which paid benefits based on an employeeâ€™s years of service and pay, have been gradually replaced by individual accounts loaded with stocks and more exotic holdings, which provide benefits based on fluctuations in the financial markets.
……As the financial market implodes, the risks of this approach are becoming all too clear.
Policymakers in Washington should help Americans replace their risky accounts with new pensions more like the old kind with defined, predictable benefits. How would they do this? By setting up government-managed retirement accounts for every worker who does not already have an old-fashioned pension.