We’re continuing to see the “unintended consequences” of the financial crisis and the newest thing is companies holding 401k’s hostage.  It’s stories like the one below that make me think the 401k era is over.   When I return to work, I seriously doubt that I will enroll in a 401k plan even if there is a small match.    The fundamental problem for me is the horrendous way 401k’s are administered.   In essence, your employer and an investment firm cook up some deal by which you get to pick from a handful of crappy mutual funds and the investment firm collects ridiculous fees for doing next to nothing.

From the Wall Street Journal:

Some investors in 401(k) retirement funds who are moving to grab their money are finding they can’t.

Even with recent gains in stocks such as Monday’s, the months of market turmoil have delivered a blow to some 401(k) participants: freezing their investments in certain plans. In some cases, individual investors can’t withdraw money from certain retirement-plan options. In other cases, employers are having trouble getting rid of risky investments in 401(k) plans.

When Ed Dursky was laid off from his job at a manufacturing company in March, he couldn’t withdraw $40,000 from his 401(k) retirement account invested in the Principal U.S. Property Separate Account.

That fund, which invests directly in office buildings and other properties, had stopped allowing most investors to make withdrawals last fall as many of its holdings became hard to sell.

Now Mr. Dursky, of Ottumwa, Iowa, is looking for work and losing patience. All he wants, he said, is his money.

“I hate to be whiny, but it is my money,” Mr. Dursky said.

So this is how free capitalism works these day?   The rightful owner can’t retrieve his money because it might hurt everyone else?  With this logic you might as well nationalize all the 401k plans and have the government hand out checks to everyone.

So in addition to investment firms offering crappy mutual funds with high fees, they can now hold your 401k hostage until the market improves.  Gee I wonder if they’ve suspended their fees during this time period?    The 401k is technically dead but most people don’t know it yet.   I for one won’t be returning to 401k’s until there is some serious legislative change to allow workers to invest their money ANY WAY they want: gold, ETFs, options, commodities, etc.