Ever tried to ‘actively manage’ a 401(k) account?

Last month, Los Angeles Times columnist Tim Rutten penned a column on the recent tumble of the nation's 401(k) tax-deferred retirement accounts.

(Since October 2007 our 401(k)s have lost a third of their value -- a cumulative $1 trillion.)

"There's been little discussion of the way in which this economic implosion has exposed the utter failure of the now-ubiquitous 401(k) retirement accounts," Mr. Rutten offered. "In fact, the entire 401(k) system looks increasingly like the sort of bait-and-switch con relished by the Bernie Madoffs of the world."

The problem, according to Mr. Rutten, is that "in 1978, when Congress amended the Internal Revenue Code to include Section 401(k), it envisioned the provision mainly as a way for workers to supplement their companies' traditional defined-benefit pension plans and Social Security. ...

"Nobody at the time envisioned the 401(k) as something on which people would rely for their retirement. But in the years that followed, more and more employers began to look for ways to get out of funding the pension and health plans that, up to then, had been regarded as part of the responsible capitalist social contract. ...

"Nobody bothered to ask employees whether they wanted to swap their pensions for choice or ownership, nor did anybody stop to notice that very few people are suited by background, ability or temperament to actively manage investments."

Mr. Rutten has some points -- though my granddad was promised a pension from the Tri-State Asphalt Company when he retired. New owners took over; the pension disappeared. I think Hick might have preferred to have been left with some stocks in his own name, even if the market had dropped.

What I keep going back to, though, is that part about how "very few people are suited by background, ability or temperament to actively manage investments."

Early in 2008, figuring the market was going to hell, I dumped all the domestic stock holdings from my own 401(k), shifting those funds into bonds (despite the fact I'm constitutionally opposed to loaning more money to Uncle Sam, given the fact he uses it to jail gun owners and pot smokers, poison crops overseas, ruin our free economy, stuff like that). This preserved a little more of my capital than if I'd stayed on the New York Stock Exchange last spring.

However, because the Great Dump of Autumn 2008 pulled down my overseas stock fund right along with stocks in the U.S. index funds, my "good fortune" was short-lived.

The question is, if you'd been lucky enough to "call the markets right," and if you were "suited by background, ability or temperament to actively manage investments," could you have made money with your 401(k) fund -- or even preserved the value of your assets -- over the past year?

What happened to those of us who saw trouble coming back in 2007, and who called our 401(k) administrators, asking, "Can you shift all my funds into cash for the next year or so?"

I can tell you what happened, because I tried.

I was told, "Sir, if you cash out your 401(k), there will be adverse tax consequences."

"No, no," I tried to explain. "I don't want to 'cash out,' I don't want you to send me a check. I just want you to sell all holdings and hold my assets as cash."

"Sir, if you cash out your 401(k), there will be tax consequences."

Once you worked your way up the food chain to someone who could parse a sentence, what you learned was that, "We're not like a brokerage house. By federal statute, all your assets have to be invested in one or more of our approved funds at all times."

OK. Could they sell my stock and bond funds and put the money in gold bars?

No.

Did they have a fund that would allow me to put a sizable hunk of my assets in gold mining shares?

Um ... no.

Mining shares in general? A commodity and resource fund, including mining, timber, cattle ranches, coffee, tobacco?

No.

I mentioned earlier that, to escape dependence on paper instruments denominated in increasingly worthless Federal Reserve fiat "dollars," I'd placed all my remaining stock holdings in the one and only "international fund" offered by my 401(k) plan. But it turned out that placed 37 percent of my holdings in the European Union, 19 percent in Great Britain and 16 percent in Japan -- a mix over which I had no control. Only 10 percent of my assets in that fund -- the only "overseas" fund available -- were invested in "emerging markets" or the "Pacific Basin not including Japan," which is where I wanted to be.

Could I shift more of my modest retirement savings into an emerging markets fund? No. Into a Pacific rim fund? No. Swiss pharmaceuticals? No. Anywhere better divorced from the fate of the interlinked fiat dollar, pound, Euro and yen? No.

Although these 401(k) managers self-righteously stress "diversification" at every turn, virtually all their stock packages are index funds, designed to mimic the holdings and performance of the S&P 500 or some subdivision thereof.

OK, that's more "diversified" than investing all your savings in your sister's frozen yogurt stand. But it's also why they've all tumbled in unison with a falling New York market.

Look through a list of the holdings of any stock fund in which you were allowed to invest your 401(k) funds a year ago. You'll find fund after fund where the highest percentage of holdings were in the "financial" sector -- 22 percent of holdings, 17 percent of holdings, 33 percent of holdings.

Banks, for God's sake. Instead of putting my money in a bank, I invested in a stock fund -- which proceeded to shift the lion's share of my funds into bank stocks, because "everyone knows banks are safe."

"The regulators have told them if they create a gold fund or a commodities fund -- anything that's considered a 'high-risk investment' -- and people end up losing money, the people who put money in those accounts could come back and sue them, for 'allowing' them to put their money at risk," I was told by someone who actually deals with these 401(k) folks on behalf of a major local employer.

Did we lose a third of the value of our 401(k)s in the past year because we're clueless boobs "not suited by background, ability or temperament to actively manage investments," Mr. Rutten? Or did our 401(k) funds collapse, like fishing floats in a tidal wave, because the government nannies who oversee the "private" 401(k) administrators saw to it we had no option but to plow our retirement funds into Bear Stearns and Lehman Bros.? Or, hidden away in the bond funds, a whole bunch of mortgage-backed securities -- you know, the "safe" stuff -- or directly into loans to Uncle Sam (government bonds), who then proceeded to turn around and loan our money to Bear Stearns and Lehman Bros., Citigroup, Bank of America ...?

Buy guns and gold.

And for heaven's sake, don't tell anybody where they're hid.

Vin Suprynowicz is assistant editorial page editor of the Review-Journal and author of "The Black Arrow." See www.vinsuprynowicz.com/ and http://www.lvrj.com/blogs/vin/.