Posts by ironsurfer10

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SEC: For 2007, the 401(k) fund benchmark return was 6.5209%
The S&P 500, which tracks the benchmark returns for four mandatory 401(k) funds, rose by 6.81% last year

For 2007, the benchmark return for mandatory 401(k) funds in America stands at 6.5209%, while the guaranteed return is 0.5209%.%4 Since the annual growth rates for all 401(k) funds exceeded the guaranteed return level, no fund will be required to make up any difference to meet that guarantee, according to the SEC (SEC).

Well, that covers the security of the funds. I really hope we don't have to revisit this particular subject again...🤷

According to SEC data for 2007, the value of the S&P 500—which reflects the movement of benchmark returns for the four mandatory 401(k) funds—increased by 6.81% over the last year. Specifically, the funds with returns higher than the average were the Bank of America/State Farm and Wells Fargo funds (7.66% and 6.9% respectively), while AZ (6.38%) and the JPMorgan Chase blue fund (6.05%) fell below the average.

I’d like the colleague who was speaking up about AZ on this thread to take note of these lines...

SEC data also indicates that the average annual return from the inception of these 401(k) funds—from April 2002 through the end of 2007—was 7.6%. At that level, the highest return, at 8.11%, was recorded by the JPMorgan Chase blue fund, followed by Bank of America/State Farm (7.88%), Wells Fargo (7.85%), and the AZ 401(k) fund (7.12%). [/I]

There, I think I've found everything I could. I hope everyone is happy and satisfied!

@ Kimberly Nguyen, and to some extent Mark Sullivan62.

Article 58.

Every member of a 401(k) fund is guaranteed a return equal to one-third of the benchmark return, as determined by the SEC. This is capped at the Federal Reserve's discount rate, provided that the benchmark return remains positive over the course of a single calendar year.

Every single member of the 401(k) fund is actually guaranteed a specific kind of protection: if the benchmark return set by the SEC ends up being negative over the course of a calendar year, the fund is obligated to provide a return equal to three times that benchmark. It's a bit of a safety net designed to cushion the blow if the market takes a dip.

If the returns on a 401(k) fund—calculated according to the standards set out in Section 54 of this Act—fall below the guaranteed minimum return specified in Sections 1 and 2, there is a clear protocol in place to make sure members aren't shortchanged. First, the difference required to meet that guaranteed benchmark return will be paid directly into the individual accounts of the fund members using the guarantee deposit. If that deposit doesn't cover the full gap, the shortfall will be pulled from the pension company's core capital, up to a limit of 20% of their annual core capital. Should there still be an outstanding balance after those sources are exhausted, the remaining amount will be covered by the federal budget.

Kimberly Nguyen said:Hey there, 🙂 ... try adding some line breaks and spacing next time... make it actually readable 😉

Anyway, back to the point here.

Look, I'm sorry, but let's call this what it is: extortion. A "recommendation"? What kind of recommendation is it when you tell someone, "Hey, you'll only get this loan if you move your 401(k) fund or your DMF or your entire paycheck over to us"? I mean, seriously, 🙄hello?

In my book, that is incredibly, incredibly low-class 👎... to operate with that kind of mindset and that kind of approach

That's exactly right. Even if they don't explicitly say, "this is a requirement for your loan," they tend to wrap it up in softer language. They might say something like, "Look, you're already a valued client, but since your debt-to-income ratio is a bit high, it would be much easier for us to approve this credit line if you also held your 401(k) fund with our bank." Of course, people take that at face value and end up rushing over to the local branch with their ID in hand!

Ronald Allen said:Look, I’ll tell you right now—you aren't right. You're partially right, sure, but on completely different points... I can't really explain why without breaking some rules here, but overall, you're way off base...

First off, a loan officer at a bank isn't the same thing as a teller at a window, and I'm saying this again: nobody ever mentioned switching to a specific 401(k) fund as a condition or perk for getting a loan.

I'm only going to focus on the part where you say people are blocked from getting loans by blacklists or credit scores; so how exactly do you think people who are on a blacklist for some bullshit actually get loans...? Every bank has collateral, meaning they have specific assets used to finance a certain number of people who are actually just trying to dig themselves out of a hole with a loan so they can finally pay off everything they owe to the banks...

P.S. Hey, shoutout to Mark Sullivan62, Kimberly Nguyen, and ironsurfer10!

You're allowed to explain things here since it's just a forum—nobody actually knows who you are! Though, I have a pretty good feeling I know exactly what you're getting at.

Ronald Allen said:Look, I’ll tell you right now—you aren't right. You're partially right, sure, but on completely different points... I can't really explain why without breaking some rules here, but overall, you're way off base...

First off, a loan officer at a bank isn't the same thing as a teller at a window, and I'm saying this again: nobody ever mentioned switching to a specific 401(k) fund as a condition or perk for getting a loan.

I'm only going to focus on the part where you say people are blocked from getting loans by blacklists or credit scores; so how exactly do you think people who are on a blacklist for some bullshit actually get loans...? Every bank has collateral, meaning they have specific assets used to finance a certain number of people who are actually just trying to dig themselves out of a hole with a loan so they can finally pay off everything they owe to the banks...

P.S. Hey, shoutout to Mark Sullivan62, Kimberly Nguyen, and ironsurfer10!

And the same to you! ☕

wiredotter16 said:The first thing that popped into my head was how much of a rude welcome this new guy is getting in the 401(k) fund... it’s way more intense than what happened with $60... no hard feelings though.

That’s just how it works with our advisors who are working directly for us. Sorry, but that information is absolutely spot on!

wiredotter16 said:Hey everyone, this is my first time jumping into this thread. The topic caught my eye, so I figured I’d weigh in. Regarding the claim that banks force you to switch to their specific fund when applying for a loan—that isn't entirely accurate. Bank employees operate under all sorts of quotas, like how many loans they need to close in a certain window or how many premium credit cards they have to issue. Part of their job description includes migrating people into their funds. Honestly, the data being presented by ironsurfer10 is a bit off. If you work directly for a fund, the gross pay for converting someone from one fund to another is pretty much a known figure, though some people pull in significantly more. When someone joins a fund for the first time, the gross amount is slightly lower, but those payout examples refer to people employed directly by the fund. As for bank staff, they only see an extra bump in their paycheck if they hit their team targets; usually, that bonus is capped at about 10% of their base salary. To circle back to this whole "requirement" thing—it would be more accurate to call it a "recommendation" from the teller. Of course, the employee isn't to blame if the client perceives it as a mandatory condition for getting the loan. Then again, most people are desperate enough for the credit that this "condition" doesn't even feel like a hurdle; they'll do whatever it takes just to get approved. It’s the same deal with people looking for loans through classified ads. The "requirement" to join a fund comes from the people working for the agency processing the loan. These folks don't actually live off loan commissions; they make their money through life insurance policies and by moving people into funds. Let's be real here: you are taking out a loan because you desperately need it, and I doubt it matters much to you which fund you end up in. Your only priority is getting that money. Since you likely can't get a traditional loan at a major bank like Chase or Bank of America due to a bad credit score or a bankruptcy filing, you're essentially paying a middleman for the service of getting the loan realized. That commission is actually up to five times smaller than what someone working directly for an investment firm would earn. Sorry if I went on a bit of a rant here. Cheers.

Oh, please! If I've gotten anything wrong here, I'll gladly step down from my position right now. Because if I'm providing inaccurate info to this group, it means I'm doing the same to our clients—and honestly, that would be a pretty embarrassing situation to find myself in!😲😂

Kimberly Nguyen said:👍

I honestly had no clue about this whole guaranteed return thing

Is there any way to find out what that number actually is? Does it fluctuate depending on which fund you're looking at, or...

Though, I have to admit, that bolded part really threw me for a loop 😵

What specifically was confusing? Was it the part about the guaranteed return having to be positive? I mean, obviously it should be, but I just wanted to emphasize it so there wouldn't be any misunderstanding...

As for the actual guaranteed return rate, let me look into it and I'll get back to you!

Kimberly Nguyen said:Let me run the numbers here... 🤔

So, if I put my money into $0.33 back on January 1st, 2008, I’d be sitting on 6.5077 units.
But those exact same units? By January 23rd, 2008, they aren't worth nearly as much. $0.33 They've dropped down to $323 just
.
That means compared to where I started on New Year's Day, I'm looking at a loss of roughly 3.05%.

Now, let's look at the alternative. If I had invested that same amount on January 1st, 2007, I would have walked away with about 6.9503 units. And by January 23rd, 2008, those units would have been valued at $345
.
In that scenario, I'd actually be up by 3.543%!

If my exit window had hit during those final $333 months, there is absolutely no way I would have received $333. Instead, I would have likely only seen $323, or—given what you're claiming about the insurance coverage—maybe I would've managed to get $333.

Alright, let me try to break this down one more time. I’ll explain it once more, and then I think I’m done with this topic because it’s getting a bit exhausting. If you really feel like my information isn't accurate, feel free to call any of the investment funds directly and ask them yourself.

So, I’ll walk through how this works both in theory and in practice.
Theoretically, your money is protected first by the pension fund itself, then by the custodian bank, then by the SEC, and ultimately by the federal government. However, since the government doesn't want to take on unnecessary debt, the operations of these pension funds are strictly regulated. At the end of every single business day, all transactions made within the fund are reported to the SEC. Every fund is also required to hit a guaranteed minimum return by the end of the year. I’m not entirely sure of the exact percentage, but it’s definitely a positive number. If a fund performs poorly—meaning it shows negative returns over an extended period—the SEC will step in and prohibit them from operating. In those cases, the boards of directors from all active funds meet with the heads of the SEC to decide what happens next. The assets (specifically the total contributions from employers) are then transferred to the account of a custodian bank, and clients can then choose whether they want to stay with the bank that absorbed the failing fund or move to a different one. Essentially, they would still have the total amount contributed by their employer on their account, just without the accumulated returns.
In practice, however, negative returns usually only pop up at the very beginning or the very end of the year. Most funds see their peak returns around September or October, but things might dip toward late December. They might continue to slide for a little while after that. Those are just CURRENT returns, and honestly, they shouldn't be a cause for panic.

Now, to answer your specific question. If you contributed $333, and the return is currently negative, it’s true that you don't have that full $333; you actually have slightly less. But you will still have more than the raw total of what your employer contributed, because over the years, you’ve earned interest on top of those payments. Does that make sense?

And regarding what Quincy, or maybe someone else—I can't quite remember if it was even mentioned in this thread—said about how you could potentially end up with less money after 30 years than what was actually contributed by your employer: that simply isn't possible. I explained why above. If a fund fails, it closes down, and the total assets are moved to a custodian bank's account.

Whew... I don't even get asked these kinds of questions at my actual job! But I hope that clears things up for everyone. It’s not like you just put money in and it suddenly vanishes into thin air!

here link, I’ll have to dig around a bit more to find that chart for you

edit: looks like that first link is broken, try this one instead

Mark Sullivan62 said:Kimberly Nguyen, I think you’ve got your wires a little crossed here.

The returns listed above actually date all the way back to January 1st, 2008, not just since last year.

Actually, if you look at how things have shifted in the interim, those figures have basically doubled, which puts the current R&D performance at -5.46% when you track it from the start of 2008.

Which essentially means the current value of an R&D unit is sitting right where it was back in March 2007.

And honestly, it makes me wonder—suppose we fast-forward to 2038 and the unit value is still stuck at those March 2007 levels.

Who is actually on the hook to cover that gap, how much are they paying, and what should that amount even look like by 2038?

I just don't get how you can work for some pension fund and sit there claiming these assets are fully secured when they clearly aren't.

I may have phrased that a bit poorly... what I meant to say was that the returns shown are for this year compared to the same timeframe last year. So, the ROMF return is about 5% lower this year than it was during this same stretch last year. It’s really nothing out of the ordinary, though, since the start and end of the year are almost always pretty volatile periods.

Mark Sullivan62 said:Kimberly Nguyen, I think you’ve got your wires a little crossed here.

The returns listed above actually date all the way back to January 1st, 2008, not just since last year.

Actually, if you look at how things have shifted in the interim, those figures have basically doubled, which puts the current R&D performance at -5.46% when you track it from the start of 2008.

Which essentially means the current value of an R&D unit is sitting right where it was back in March 2007.

And honestly, it makes me wonder—suppose we fast-forward to 2038 and the unit value is still stuck at those March 2007 levels.

Who is actually on the hook to cover that gap, how much are they paying, and what should that amount even look like by 2038?

I just don't get how you can work for some pension fund and sit there claiming these assets are fully secured when they clearly aren't.

Alright, it looks like I need to clear things up a bit. Please don't question my expertise regarding how these pension funds actually operate.
Here is what I was actually saying: regarding the security of assets within the funds, I meant they are protected even in the event of a fund's insolvency. Essentially, if a fund were to fail, the assets themselves remain secure, allowing participants to simply select a different provider.
As for negative returns—the assets are also protected up to the total amount contributed by the employer. In other words, the client always retains whatever the employer has deposited. If the fund performs poorly and yields a negative return,
it’s true that the user takes a hit, but only in terms of lost interest or the potential growth of their capitalized assets.
I hope that clarifies everything!

Mark Sullivan62 said:I’m sorry, but how exactly are those assets "insured"?

A fund is just a fund. It grows its own wealth—and yours by extension—either through new deposits or through the returns on the securities it invests in.

The problem is, those returns can absolutely go negative.

Just look at the performance of some major mutual funds back during the 2008 crash:

Raiffeisen Bank -2.68
AZ profit -2.10
State Farm -1.84
AZ benefit 1 -0.29 Chase Expert -2.50 Chase protect 0.02 -0.29
Chase Expert -2.50
Chase protect 0.02

So, go ahead, explain to me how my money is supposedly insured, and exactly what amount we're talking about here.

All I see here is red...

They are, technically speaking. Those numbers look like losses, sure, but they are strictly TEMPORARY. They represent the performance relative to the exact same period last year. What I mean is, you don't actually have $0.00 missing from your account because the yield is negative; rather, you just have slightly less than before because the NAV dropped. But at the end of the day, the actual cash in your account—it's still there.

Mark Sullivan62 said:What makes you think it's inaccurate?

Well, it just doesn't seem to add up to me. Based on what I'm seeing, it feels illogical that someone with my gross salary $2667 would end up with a Social Security payout of roughly $500 by age 65, assuming all other factors remain constant. There are several different ways these payouts can be calculated, and they didn't specify which model they used for this estimate. On top of that, the projected primary Social Security benefits don't look right to me either...

Here is the link if you want to take a look yourselves...

Ronald Allen said:I’ve been officially employed since January 1st, 2002. So, let me get this straight... basically, what you're saying is that one day, when I finally retire, those severance payouts at the end of my career will go exclusively to me? Is that how I'm reading this...?
Look, it’s obvious to me that if we just rely on Social Security, our retirement income is going to be absolute garbage... but is it actually smarter to put money into life insurance or a 401(k)? Kokoshka claims the 401(k) offers multi-layered security, but honestly, I’m pretty skeptical. I mean, the government is already screwed anyway, and who knows if we’ll even make it to 50? I do know you can start pulling from a 401(k) after age 50, which sounds pretty decent since you can grab the cash whenever you need it...

Look, I work in the pension industry, so I know I’m being a bit biased when weighing these two options against each other. I don't know the exact amount of insured funds being funneled into life insurance policies, but I do know that the assets within a 401(k) are fully protected. You can keep contributing for as long as you want; you gain access to those retirement funds once you hit 50, though there are several different payout models to choose from—you can't just take the whole lump sum at once.

Ronald Allen said:So that's the catch!?!? But my funds and cost of living are supposedly guaranteed, right...? Or am I missing some kind of restriction somewhere... 🤷
But what if the custodian bank goes under??? I know there’s basically some level of insurance for almost all investments here in the States (though I guess that doesn't count mutual funds or whatever...) but isn't the whole point that if these options fail one by one, you just end up broke in your 401(k)? Because that's voluntary savings, right? It's not like, I don't know, something mandated by the government like Social Security... 🤷

Even if the custodian bank goes under, I've mentioned before that private retirement fund assets aren't part of the bankruptcy estate. They don't even list those funds as their own assets on the balance sheet because they don't actually control them. So, regarding the 401(k)-style accounts, you can be completely confident that you won't lose your money due to a bank failure; your only real enemy is inflation.

Life insurance might give you a hard time during payouts if you haven't been making regular contributions—something nobody would blink an eye at with a standard IRA, but an insurance provider could definitely fight you on. As for the IRAs and the risk of banks failing, since these aren't state-mandated programs, there’s really no reason to worry! The U.S. government actually gains more from voluntary retirement savings than it loses, so there's no incentive for them to let this whole system collapse.

Ronald Allen said:@Edgar

That's me. Honestly, my big question is... who's gonna fund my retirement down the road if the ratio actually hits 0:20? Like, really? And once we finally agree on what even goes into calculating a pension, I think I’d be better off just putting money into life insurance—God forbid, but you know—so at least in 20 years I have some guaranteed cash. The 401(k) feels way too risky for that kind of long-term play, especially since there's zero guarantee for these funds. If the whole thing collapses, everything just goes up in smoke!

As for Social Security, I'm not entirely sure, but it would probably be covered by the government through special funds, just like Edgar mentioned, though I can't say for certain...🤷

Regarding the comparison between life insurance and a 401(k), it really comes down to what you're actually aiming for—do you want a lump sum payout plus returns, or are you looking to secure a monthly annuity once you hit 50 or 60? Personally, I don't think a 401(k) is inherently risky; in fact, it might actually be less risky than life insurance. Your assets are protected through multiple layers: by the fund itself, the custodian bank, the regulatory agencies, and ultimately, federal oversight. Even if the investment firm managing your 401(k) were to go under, your money wouldn't get swallowed up in bankruptcy proceedings because it's held separately by the custodian bank.

Is there any way I can jump in on this?

Brian Moore12 said:I don't think anyone here is actually factoring inflation into their projected income—specifically when it comes to pensions. If, for example, OMF pulls a 7% return in a given year but inflation is sitting at 3%, we’ve really only cleared 4%, right? As Mark Sullivan62 so eloquently put it... our pensions are looking pretty pathetic.

There is a calculator on the Vanguard website to estimate your 401(k) payouts, but honestly, I don't think it's very accurate.
As far as inflation goes, you're absolutely right; there isn't any clause or guarantee that protects the funds in your account from being eroded by rising costs.

Mark Sullivan62 said:There’s this persistent rumor floating around that they might eventually scrap the first tier entirely—the one where 15% of your gross pay currently disappears. The reality is, you aren't actually building your own nest egg there; you're just subsidizing the checks being cut to current retirees right now.

With the other 5% of your gross income going into an OMF of your choice, those shares are held in your name, and that's what actually constitutes your future retirement fund.

People used to speculate that this ratio—this 15:5 split—would eventually shift in our favor, moving more toward the OMF side until it hit something like 0:20, but nothing has moved an inch on that front. And honestly, there's a dead-simple reason for that: the government doesn't have the cash to cover current pensions on its own. To fix that deficit, they'd have to pull money from somewhere else, which usually means slapping us with new taxes or some other kind of levy...

Of course, when it comes down to it, your final payout from the Second Floor—your OMF—is going to depend on a bunch of different variables. First off, it's about how much you're actually putting into the fund to buy those shares (which, let's face it, is tied directly to how high your gross salary is), then there's the fund's actual performance, and finally, just how long you've been contributing.

Once you actually hit retirement age, those funds sitting in your OMF get transferred over to a retirement firm, where you'll get to pick how you want to receive the money—I think there are about six different payout models to choose from at the moment.

Basically, those assets move into a pension insurance company. Here in the States, we don't have a single centralized system quite like that, but if we look at major players like JP Morgan Chase, they handle massive amounts of retirement assets. Some smaller funds might offer returns too, though they tend to stay pretty low, hovering around 2%. In terms of timing, the first wave of people started receiving their payouts from these types of structured plans back in the mid-2000s.