New 401K Rules Everyone should know about

[Chimichurri]

Since their social security plans went bust I suppose this is the next best thing.

Automatic enrollment: At companies offering a traditional pension, employees are generally automatically enrolled. But 401(k) plans typically require new employees to sign up, which can be a tough sell for younger or lower-paid workers. There are 12.1 million people in the U.S. eligible for workplace retirement plans who don't participate, according to the nonprofit, nonpartisan Employee Benefit Research Institute.

In fact, many states bar companies from taking money out of an employee's paycheck without written consent. It is a leftover law from the bad old days when unscrupulous employers would force employees to buy things like food or clothing from a company-owned store at extortionist prices, says Fred Reish, an attorney specializing in retirement-plan law.

The pension-reform bill changes that, allowing automatic enrollment. Employees can opt out of the plan, but retirement experts say that once people are in a plan, they are likely to stay put simply out of inertia. The idea, says Christopher Jones of investment-advisory firm Financial Engines, is to "flip inertia from being a force of evil into a force of good."

With automatic enrollment, participation in 401(k) plans could jump from 66% of eligible employees to about 92%, according to estimates done by EBRI and the mutual-fund industry's trade group, the Investment Company Institute.

Automatic increases: To address the problem of employees not saving enough for retirement, the new law makes it easier for companies to automatically increase the percentage of an employee's salary that is directed to the plan.
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Advice: The most controversial aspect of the 401(k) plan makeover is the provision letting companies offer specific investment advice. Under the rules, specific investment recommendations can be given if they are based on a computer model that must be certified as bias-free by an independent third party.

Independent third party? I wonder how one goes about finding one of those.


http://www.prudentbear.com/bearschat/bbs_read.asp?mid=428747&tid=428747&fid=1&start=1&sr=1&sb=1&snsa=A#M428747

[Robbien]

1. The buzz words "nonprofit, nonpartisan" means GOP

Just so you know where the advice is coming from. If you already didn't guess from their statement it is good that the employers take employees money without their request.

I do not trust this new pension bill. So far everything I have read about it makes it appear to be bad news.

[Virginia Dare]

2. This is another scam on American workers....

chickens guarding the henhouse as usual.

[lonestarnot]

3. Yes another scam, an a big one.

[Lerkfish]

4. er...maybe you mean foxes guarding the henhouse? lol

[Virginia Dare]

6. maybe....LOL

I'm rather out of it this morning, I think I'd better give it a break.
:rofl:

[lonestarnot]

10. Chickenhawk, foxes, chickens... It's a scam.

[NoAmericanTaliban]

5. The goal is to get 90% or more 401k enrollment to get more money for

Wall-street to spend. That was also the motive behind the SS privatization scam. More $$$ in the system will rise stock prices & make those already holding them richer when they dump them.

As far as companies giving investment advice - they mean like Enron told their workers to buy company stock while they knew it was going south?

[Robbien]

7. Does WalMart offer 401K plans?

I would hate to see this scam being pulled over on the poor cashier who may need every nickel WalMart doles out.

[Solo_in_MD]

13. A Wal-Mart Manger told me there was some sort of automatic savings plan

I did not press for details, we were unwinding after a long day MCing, so take it with salt as needed

[formercia]

19. Automatic savings plan?

Like the employees make enough they can afford to save anything, or is this to pay for medical coverage that Wamart doesn't cover?

[iamjoy]

8. Automatic Enrollment Is Nothing New

companies send out a notice, or review in Orientation that they have automatic enrollment, and if employees do not actively decline by the deadline, they are considered to have consented to the enrollment.

I'm not saying it is a good thing, just that it happens.

[Chimichurri]

11. for pensions yes. But most states forbid employees from taking

money out of paychecks without consent this includes 401Ks. This new law changes that.

[leftchick]

9. I read this morning Sen. Levin is for it

and Stabenow. :(

[calmblueocean]

12. This is a good idea, IMO.

If you can get $19,000 in your 401(k) by the time you're 25, and your 401(k) grows at the historical rate the stock market has, you could quit saving at 25 and still retire a millionaire.

If the employer matches 50%, you only need to save $12,666 by the time you're 25. That's $151 a month from your 18th birthday til your 25th birthday to retire as a millionaire at 67. And of course, if you keep saving throughout your 20s and 30s, you can retire much earlier.

This sort of legislation is meant to address a few problems with 401(k)'s, one of which is that people often don't save enough, or invest their 401(k) assets in the ways that will benefit them the most. Even if your employer does make changes, they would be required to notify you of any changes they make, and you can always change them back. It's your money. But the idea is, basically, to make the employer take some proactive responsiblity for those who aren't paying attention or simply don't understand how to maximize their benefits. The effects of doing this or not doing this in your 20s and 30s are so profound that not setting people up to succeed in this way is just irresponsible.

[Solo_in_MD]

14. Seriously good idea

While compound interest is taught in HS, few Americans seem to really understand it.

[calmblueocean]

20. It's too bad they don't teach financial management in HS.

They should teach kids about 401(k)'s, compound interest, how credit reports work, the entire process it takes to buy a home, and how expensive a credit card's minimum payment really is, for starters. It's odd to me that we can't seem to devote a single semester to teaching young people about the things that will actually affect their lives the most.

[Robbien]

15. I beg to differ

Most Americans have more credit card debit than they can handle paying rates in the high teens and low twenties.

Most 401K plans return far less than the Wall Street stock market returns. The 401k plans are where most stock managers dump their dogs. These plans mostly have returns which are much lower than the rates the investee is paying on their credit card debt. To get into the good plans takes alot of investigating.

What this new reg will do is hook in uninformed laborers into standard sub-performing plans.

The only way to win with a 401k plan is to constantly monitor what the plans are doing. That takes a lot of work and time which many do not have or are not willing to do.

[calmblueocean]

18. I'm not seeing it.

Re: 401(k) plans

You said "The only way to win with a 401k plan is to constantly monitor what the plans are doing." That's just not the case when you're investing for the long term.

All you need to do is invest in an index fund, and many if not most 401(k) plans offer them. Even if you don't invest in an index fund, you'll almost certainly be many tens of thousands of dollars better off at retirement investing in any long-term portfolio than you will be investing in the low-yield short-term funds that are the default choice today. For the worker who just runs on automatic, who doesn't pay much attention to their 401(k) until retirement, this will make a tremendous difference.


RE: Credit card debt

I don't disagree with you here at all -- we have way too much credit card debt. That's one of the reasons I think we should put a much greater emphasis on getting young workers investing in their retirement when they're in their late teens and early 20s, before they have a chance to get overwhelmed by credit card debt.

[Robbien]

21. But the "hi-jacked" 401k contributor doesn't get to the indexed fund

They get dumped into the loser pile of dogs.

Yes there are many 401k plans out there which will do a lot of good for the investor, but the unknowing 401k hijacked employee will get led astray I believe.

[Yupster]

23. What loser pile of dogs?

I set up 401 (k) plans for companies and honestly have no earthly idea what you're talking about.

Generally I show the benefits director the 40 funds a company offers and the director can choose any seven of those funds plus the money market option which is automatic.

Generally the director asks me for my recommendations.

Then I'll show him a solid bond fund, a balanced fund, a balanced fund with a fixed portion, a value stock fund, a growth stock fund, an international fund and an index fund.

This is for relatively small companies.

For larger ones the choices are much greater.

I'd like to know where it is in my interest to pick bad investments out for the company. That doesn't make a lick of sense. If the investments don't perform well, I'll lose the account as I know there will be three more salesman trying to get the benefits director to switch to their companies every year.

[Yupster]

22. Dump their dogs?

The 401 (k's) I know about the company setting the plan up can chose from 7 to 40 options out of maybe hundreds of mutual funds. Usully the way it works is the finncial advisor working with the company makes recommendations of a spread of mutual funds and the company approves them.

The financial advisor has no interest in the funds performing badly, and the fund managers have no say in whether their fund is selected or not.

You might have a list of all 40 of the funds run by American Funds and you're asked to pick seven. Or you might have five different fund companies to choose among, perhaps American Funds, Franklin-Templeton, Lord Abbett, Putnam, Opeenheimer, AIM and Van Kampen, and you can pick 30 of their available funds.

[Virginia Dare]

16. You should research this some more...

There's a very good book out called "The Great 401(k) Hoax". It gives some really good counter arguments to the meme that 401(k)'s are good for workers.

I've known of quite a few people who took a lump sum retirement instead of a pension and ended up losing everything in the stock market and having to go back to work. I doubt seriously that very many average working people will end up as millionaires from their 401(k)'s.

At any rate, most average Americans don't have the knowledge, the time, or the motivation to know market ups and downs well enough to invest their money wisely.

[Chimichurri]

17. you're sentiment is correct however one has to question

who will be regulating those giving investing advice and how will these same folks entice employers to automatically raise how much will be taken out of your paycheck. The fact that it's under the term "automatically" worries me because you may not know when or how much of your salary is being siphoned off. Your employer would be making changes on your behalf. For many siphoning off 4% from 3% of their paycheck hurts.

This reminds me of the dotcom bubble when stock pushers would go on tv peddling junk IPOs and telling new investors to buy this or that stock. In the end, the novice investor lost their shirts as these stocks in question imploded. This bill doesn't cover the prospect of this sort of predatory practice. The idea of forcing investment by proxy of automation of 90% of the workforce seems to be the next manipulation attempt at keeping the stock market from crashing once the real estate carnival ends.

The theory of having folks invest in 401ks would be nice if these inwilling investors where protected against market manipulation. Unfortunately the average person gets no protections until grave abuses occur where financial hardships move all of us to demand accountability. At least that's what history dictates and this bill does nothing to address the very real possibility of rampant fraud to occur. In other words this right now will be a free for all for Wall Street until the government or class action law suits reels these potential abuses in.

[Ciggies and coffee]

24. With the medical industry knocking,

The financials have to get their share of the future scrip of workers. Longer lives, less living.