Daily Archives: May 15, 2009

America’s Money Is Being Held Hostage

Some investors in 401(k) retirement funds are reportedly finding that they can’t get their money — the months of turmoil in the stock market has resulted in some individuals finding their investments in certain retirement-plans frozen — and some employers are having trouble getting rid of risky investments in 401(k) plans.

One such victim is Ed Dursky who was laid off in March. He found that he couldn’t withdraw $40,000 from his 401(k) retirement account that was invested in the Principal U.S. Property Seperate Account, an account that invests directly in office buildings and other properties. Last fall, that account stopped allowing most investors to make withdrawals since many of its holdings have become harder to sell. Other victims of 401(k)’s having their money held hostage can be found in the article from the Wall Street Journal.

The inconvenient withdrawal restrictions are preventing people like Mr. Dursky who have been laid off from accessing their savings. Many 401(k) investors aren’t aware that some behind-the-scenes maneuvers are causing more problems with their retirement plans. According to the Wall Street Journal, many funds offered in 401(k) plans lend their portfolio holdings to other investors who receive collateral in exchange that gets invested in normally safe liquid holdings.

Those actions are aimed at generating a small but relatively reliable return to help offset fund expenses, but recently, many of the collateral investments have gone bad, resulting in money managers restricting retirement plans’ withdrawals from the lending funds. In cases of employer bankruptcy and other events that can cause withdrawals, funds can be locked up for months at a time.

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