Headlines about "401(k) plans"
Gathered from the web by the editors at BenefitsLink.com.
Survey Finds Widespread Deficiency in Retirement Preparation
Excerpt: "Despite the economic downturn's effect on the retirement plans of 50-something investors, only 23% of respondents to a recent survey are salting away more for retirement and 57% never changed their deferral rate." (PLANSPONSOR)
Drastic 401(k) Reform Unlikely, Expert Says
Excerpt: "Last month, Time magazine ran a cover story titled 'Why It's Time to Retire the 401(k).' But such calls have not won over the bulk of Democratic lawmakers or President Barack Obama, [attorney James Delaplane] said at the conference. The answers on issues such as 401(k) fees are coming from regulators like the U.S. Department of Labor, not from Congress, he said." (Workforce Management)
[Guidance Overview] Chart and Outline of 401(k) Fee Litigation, Updated October 2009
Excerpt: "Over the past several years, more than two dozen lawsuits have been filed relating to 401(k) plan fees and, more specifically, 'revenue sharing' arrangements with plan service providers. Initially, the lawsuits were brought by plan participants against plan sponsors and alleged that, by allowing plan service providers to receive revenue sharing payments, the plan sponsors caused the participants to pay excessive fees, in breach of the sponsors' fiduciary duties to the participants. The focus of these lawsuits against the plan sponsors has evolved over time . . . ." (Groom Law Group)
Service Requirements for Joining 401(k) Easing, Survey Shows
Excerpt: "The Hewitt Associates Inc. survey of 300 mid- to large-size employers found that 74% of 401(k) plans do not have a service requirement, up from 61% in a comparable survey Hewitt conducted in 2007." (Business Insurance)
Comparing Individual Account Retirement Plans to Defined Benefit Retirement Plans: Neither is Risk-Free
Excerpt: "DB plans have their own set of risks. Because DB plans are 'back-loaded', the final benefit is strongly determined by earnings in the final years of employment. Individuals who are involuntarily separated, who leave voluntarily, or who die before reaching retirement age lose a significant portion of what would have been their benefit had they worked for the company until retirement." (David Wray of the Profit Sharing/401k Council of America)
[Guidance Overview] Senate Hearing Considers 401(k) Target-Date Fund Concerns, More Regulation
Excerpt: "Concerns about 401(k) target-date funds aired in a Senate Special Committee on Aging hearing and report raise the prospect of greater regulation. Hearing witnesses praised the funds as an important savings option but reiterated some issues noted in the report, such as wide differences in asset allocations among funds with the same target date, provider fees and potential conflicts of interest. The Department of Labor is working with the SEC to assess the need for more guidance and may revisit rules for qualified default investment alternatives to ensure 'meaningful disclosure.'" (Mercer)
Solo 401(k) Offers Big Tax Savings For Self-Employed
Excerpt: "The solo 401(k) plan allows you to make a contribution of $16,500 (or $22,000 if age 50 or older) of your self-employment income each year. Plus, you can also make what's called a profit sharing contribution to your plan, which could bring the maximum contribution up to $49,000 for the year." (CBS Money Watch)
[Opinion] The 401(k): Don't Believe the Hype
Excerpt: "If someone made me America's personal-finance dictator, I'd scrap the 401(k). These workplace retirement plans are inequitable, as some companies offer good ones, some bad ones and others none at all. Fees are often too high. And even the better plans often don't provide enough investment options. Instead, I'd like to see the Roth IRA opened up to allow 401(k)-sized contributions - $16,500 a year instead of $5,000. (Or $22,000 and $6,000 for people 50 and over.) And I'd like to see the Roth's income limits lifted, so anyone could have one. . . . But since I'm not running things, the best I can do is suggest ways to make the traditional 401(k) work best." (Community Television Foundation of South Florida Inc.)
401(k) Plans: Several Factors Can Diminish Retirement Savings, but Automatic Enrollment Shows Promise for Increasing Participation and Savings
Testimony presented by Barbara D. Bovbjerg, director, education, workforce, and income security, before the Senate Special Committee on Aging, October 28, 2009. 22 pages. Excerpt: "Recently, policy makers have focused attention on the ability of 401(k) plans to provide participants with adequate retirement income and the challenges that arise as 401(k) plans become the predominant retirement savings plan for employees. As a result, GAO was asked to report on (1) challenges to building and maintaining of savings in 401(k) plans, and (2) recent measures to improve 401(k) participation and savings levels." (U.S. Government Accountability Office)
Creditor Protection for Your 401(k)
Excerpt: "Under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (a.k.a. the Bankruptcy Reform Act) tax-exempt retirement plan accounts (including qualified plans, traditional IRAs, Roth IRAs, 403(b) plans, 457(b) plans, SEPs, and SIMPLE plans), are protected from an employee's creditors in the event of bankruptcy. With the exception of the Traditional IRA and Roth IRA assets, all of these tax-exempt retirement assets are protected without a dollar limit." (The Boston Globe)
Defined Benefit 401(k)s Set to Make Debut
Excerpt: "Small business owners have plenty of options to choose from when it comes to a qualified retirement plan for the company. It can range from a Savings Incentive Match Plan for Employees (SIMPLE) to a Simplified Employee Pension (SEP) to a 401(k). But now there's a new kid on the block. Strategy: Consider the defined benefit 401(k) plan (called the 'DB/401(k)' for short) for small business clients. This hybrid plan combines some of the advantages of a traditional pension plan with a regular 401(k). Why haven't you heard more about the DB/401(k)? The authority for this new plan, which becomes available on Jan. 1, 2010, was buried deep within the massive Pension Protection Act of 2006. But interest in DB/401(k)s is expected to heat up during the coming year." (accountingweb.com)
Investment Regulations and Defined Contribution Pensions
Excerpt: "This paper assesses the impact of different quantitative approaches to regulate investment risk on the retirement income stemming from defined contribution (DC) pension plans. It looks at how such regulations affect the spectrum of investment policies available and, through this channel, how they affect the retirement income that an individual may expect from a DC pension plan. The analysis shows that there is a trade-off between potential retirement income and protection from bad outcomes. Reducing the downside risk on retirement income from DC pension plans requires moving into relatively conservative investment policies where the share of assets allocated to bonds may be quite large. However, this comes at the cost of renouncing potentially higher replacement rates that are attainable but at a higher risk of unfavourable retirement income outcomes. Less risk adverse regulators and supervisors would aim at lower probability requirements as regard the downside risk, which will increase the range of investment policies available and thus the share of riskier assets." (Social Science Research Network)
Automatic Annuitization: New Behavioral Strategies for Expanding Lifetime Income in 401(k)s (PDF)
24 pages. Published July 2009. Excerpt: "Each of the 'automatic' or default strategies outlined here -- including acquiring lifetime income incrementally through the use of employer contributions or embedding adeferred annuity in a QDIA, as well as the Gale-Iwry-John-Walker (2008)automatic trial income proposal -- is designed to draw on experience andinsights from behavioral economics to help replicate, within the 401(k), one of the valued features of the traditional defined benefit pension. That feature is guaranteed lifetime income at group rates (combined, in most cases, with professional investment management)." (The Retirement Security Project)
Target-Date Fund Practices Targeted in Senate Hearing
Excerpt: "Congress once again turned its attention to target-date funds this afternoon. In opening the hearing of the U.S. Senate Special Committee on Aging, titled 'Default Nation: Are Target-Date Funds Missing the Mark?', Chairman Herb Kohl (D-Wisconsin) noted that this was the third hearing in a series the committee had held on the subject of strengthening the 401k system . . . . He also noted that target-date funds were 'developed for the average worker who may understand the importance of saving, but may not appreciate the complexities of investing.' However, regarding target-date funds, Senator Kohl said 'the more we learn, the more concerns we have.'" (PLANSPONSOR.com; free registration required)
[Guidance Overview] Effects of the 401(k) Fair Disclosure and Pension Security Act (PDF)
3 pages. Excerpt: "This article discusses how employers providing 401(k) plans to their employees will be affected by the 401(k) Fair Disclosure and Pension Security Act of 2009 in the realm of fee disclosure under legislation currently pending in the U.S. House of Representatives. There are other provisions of the proposed legislation, including the provision of investment advice, which are not discussed here." (New York Law Journal via Patterson Belknap Webb & Tyler LLP)
Senate Hearing Will Ask: Are Target-Date Funds Missing the Mark?
Excerpt: "On October 28 Senator Kohl plans to hold an Aging Committee hearing on strengthening the 401(k) system, 'with a particular focus on the proliferation, composition, and regulation of target date funds.'' (PLANSPONSOR.com; free registration required)
Retirement Savings: Automatic Enrollment Shows Promise for Some Workers, but Proposals to Broaden Retirement Savings for Other Workers Could Face Challenges
Excerpt: "Because of questions about the extent of retirement savings and prospects for a sound retirement for all Americans, GAO was asked to determine (1) what is known about the effect of automatic enrollment policies among the nation's 401(k) plans, and the extent of and future prospect for such policies; and (2) the potential benefits and limitations of automatic IRA proposals and state-assisted retirement savings proposals. To answer these questions, GAO reviewed available reports and data, and interviewed plan sponsors, industry groups, investment professionals, and relevant federal agencies." (U.S. Government Accountability Office)
[Opinion] Getting Real About 401(k) Dollar Caps; Australia's Limit on Contributions by Older Employees Reflects Actual Retirement Needs
Excerpt: "Not only are Australian employers required to contribute the equivalent of 9% of pay to their employees' accounts up to a salary ceiling of more than $145,000 -- compared to the equivalent of 3% here, but workers over age 50 can contribute over $100,000 per year to their accounts. This is nearly 20 times the measly $5,500 additional contribution ceiling for those over 50 in the U.S, a ceiling that also remains unchanged in 2010." (Jane White of Retirement Solutions)
Asset Allocation Guidance for Defined Contribution Plans, 1999 and 2009 (PDF)
2 pages. Excerpt: "Recommendation. The Government Finance Officers Association (GFOA) recommends that public employers as plan sponsors work actively with the plan administrators to provide investment options and education to help employees who participate in defined contribution plans attain their income replacement goals in retirement. . . . To accomplishthese objectives, the following practices are suggested: 1. To provide adequate diversification, plan administrators should ensure participants are offered a broad spectrum of investment choices that include all the major asset classes (e.g., equities, fixed income, and cash equivalents). The investment choices should include several passively managed investment options such as low-fee index funds. Another option is a family of asset allocation funds. In addition to mutual funds, plan administrators should consider lower-cost commingled funds and separate account funds asinvestment options." (Government Finance Officers Association of the United States and Canada)
Participant Education: Guidance for Defined Contribution Plans, 2009 (PDF)
2 pages. Excerpt: "The GFOA recommends that public plan sponsors make sure high-quality investment education is provided to defined contribution plan participants who are allowed to direct their investments. To accomplish this goal: 1. The plan should provide a consistent, ongoing educational program that uses a number of communication channels to address participants' different career stages and learning styles. Channelscould include one-on-one meetings, seminars, phone calls, the internet . . . ." (Government Finance Officers Association of the United States and Canada)
401(k) Performance: The Numbers Add Up
Excerpt: "I'm a little tired of reading about how 'buy and hold' is dead, and diversification doesn't work, and how 'target-date funds don't work,' and that there was too much risk, especially for pre-retirees, in these balanced funds. These stories seem to continue regardless of what's going on in the real world. So I won't discuss much. Instead, here's some math." (The Vanguard Group, Inc.)
401(k) Fee Litigation Report as of September 2009
Excerpt: "In addition to the lawsuits against plan sponsors, lawsuits have been brought against 401(k) plan service providers. These cases typically are based on allegations that the service providers are 'functional fiduciaries' under ERISA. The plaintiffs claim that, in negotiating for and receiving revenue sharing, the service providers breached fiduciary duties and engaged in 'prohibited transactions' under ERISA. Some of the lawsuits similarly challenge the use of actively managed mutual funds as investment options." (Groom Law Group)
Highest Earners Get Biggest Tax Breaks for Saving for Retirement
Excerpt: "Low wage earners face the most challenges saving for retirement, yet the tax subsidies for retirement saving are skewed overwhelmingly in favor of top earners. Since tax breaks for 401(k)s and similar retirement plans are tied to a participant's income tax rate, low-income taxpayers receive modest or no tax subsidies for each dollar put into these plans. The highest-paid workers, who have more resources to save for retirement without government assistance, receive the largest tax breaks." (Economic Policy Institute)
Benefits and Finance Departments Collaborate on 401(k)s
Excerpt: "While benefits executives report they are, in general, working well with their counterparts in finance, research points to patterns of divergent perceptions of 401(k) participants' goals and needs, as well as different operational priorities for the plan itself, that could hinder its ultimate success. . . . [A] recent survey did, however, show a basic consensus among benefits and finance professionals that employees are focusing more on long-term 401(k) investment returns than on simply avoiding short-term losses." (Employee Benefit News; free registration required)
How to Improve the Defined Contribution Retirement System
Excerpt: "Everyone agrees that 401(k) plan participants simply are not saving enough, but it's not all because of behavior. 'It is vital to address gaps in the defined contribution system,' says Christine Marcks, president of Prudential Retirement and co-author of a new white paper on ways to enhance retirement security for employees. First, says Marcks, retirement income is not protected from poor market conditions, as demonstrated by the recent market downturn. Market declines reduce the amount of retirement income a retiree can draw from their assets. Near-retirees are also vulnerable, as significant asset losses right before retirement impacts an individual's future retirement income." (Employee Benefit Adviser; free registration required)
Companies Plan to Reinstate 401(k) Matches
Excerpt: "Many businesses are quietly restoring plans to match a portion of their employees' 401(k) contributions. About half of the companies that suspended matches will be restoring them in 2010, says Byron Beebe, U.S. retirement market leader at Hewitt Associates. The majority of employers never expected to make the suspension permanent, says Mr. Beebe. Already, some big companies, including American Express Co. and Motorola Inc., have announced that they would reinstate suspended matches in 2010. Until recently, many employers have offered up to 6% of gross pay. Some companies are considering offering a lower match or using a tiered approach, which takes into account a person's length of employment." (The Wall Street Journal)
Should You Use 401(k) Money to Buy an Annuity?
Excerpt: "About a quarter of all companies these days offer their employees the option to purchase annuities with their 401(k) money, according to the Profit Sharing/ 401(k) Council of America, an industry group for plan sponsors. But these are lump-sum purchases that typically happen at the brink of retirement and aren't too popular with employees, says David Wray, president of the PSCA. What insurers have been working on during the past several years are specially-designed guaranteed-income products that can be purchased in small chunks with each paycheck, just like shares of a mutual fund." (SmartMoney)
[Guidance Overview] Guidance on 2009 Required Minimum Distributions for Defined Contribution Retirement Plans (PDF)
4 pages. Excerpt: "Action Steps for Plan Sponsors[:] Although the Act provides an extended period of time to formally adopt plan amendments, practically speaking plan sponsors need to make immediate decisions and take action now. Specifically, plan sponsors should: No later than November 30, 2009, decide what approach will be taken with respect to the temporary suspension for 2009 RMDs and review existing RMD procedures. Until further IRS guidance is published, it appears that plan sponsorsmay have the following options . . . ." (Patterson BelknapWebb & Tyler LLP)
Research Project: Should You Borrow from Yourself? The Determinants and Effects of 401(k) Loans
Excerpt: "This project proposes to evaluate the economic rationale for 401(k) plan loans and the empirical determinants of loan patterns. We will show how plan design and participant characteristics contribute to borrowing from one's pension, as well as default and repayment behavior. This research will be useful to employers in developing plan design, and also to employees seeking to enhance their retirement preparedness." (University of Michigan Retirement Research Center)
[Guidance Overview] Retirement and Savings Initiatives' Review as of October 2009 (PDF)
3 pages. Excerpt: "In a recent flurry of activity, the Internal Revenue Service has issued a series of notices and revenue rulings designed to promote retirement savings and address technical issues related to certain plan distributions. These initiatives are intended to: (i) encourage employers to add automatic enrollment features to their 401(k) plans; (ii) enable employees to convert unused vacation into additional retirement savings; and (iii) assist both employers and employees to better understand the available options for distributions from tax-favored retirement savings. A brief summary of the various pronouncements is set forth . . . ." (Dechert LLP)
Redefining Defined Contribution Plans to Enhance Retirement Security
18 pages. Excerpt: "Legislators, plan sponsors, and plan participants are questioning the long-term viability of the DC system, and whether DC plans are equipped to serve as the primary retirement savings vehicles for most Americans. These doubts are natural in light of the losses sustained; total assets in DC plans declined by over $1 trillion during 2008. Although the market collapse has increased the urgency of efforts to reform DC plans, it is important to note that the shortcomings of these plans existed long before the current financial crisis, and will persist after an eventual market recovery. Most participants are not saving enough, retirement income is not protected from adverse marketconditions, and participants can exhaust their assets during retirement." (Prudential Retirement)
[Opinion] Alternative to 401(k)s Is a Tax Trap in Disguise
Excerpt: "An employee's 401(k), then, can take credit for one or more of the following: 1) the current plan, 2) previous 401(k) money left at former employers, and 3) roll-over IRAs. According to McKinsey and company, anyone in their 60s has five times more money than would have been their retirement nest-egg of the pre-401(k) era. (a McKinsey statistic.) Why? Because average job tenure has always been seven years, and retirement plans were operated with vesting schedules that denied any benefit at all to those who left before 10 years." (San Jose Mercury News)
Employers Begin Driving the 401(k)
Excerpt: "Businesses are taking more control of workers' 401(k)s, retreating from the 30-year experiment with employees running their own accounts. Barclays PLC's Barclays Global Investors now urges employers to automatically direct 8% of workers' pay into 401(k) savings and build from there. T. Rowe Price Group Inc. in the past year has seen a sharp increase in plans moving all participants into target-date retirement funds -- even if those participants previously selected their own investments. Prudential Financial Inc. on Monday plans to announce a sweeping 401(k) package that, among other things, encourages employers to prohibit workers from borrowing against their retirement savings." (The Wall Street Journal)
[Official Guidance] Chart of IRS Retirement Plan Limits 2003 - 2010
Excerpt: "We have also produced a white paper that discusses the methodology that the Service uses to determine the limitations. This white paper includes the unrounded limitations." (Internal Revenue Service)
401(k) Asset Allocation, Account Balances, and Loan Activity During 2008 (PDF)
63 pages. Excerpt: "After rising in 2003 and for the next four consecutive years, the average 401(k) retirement account fell 24.3 percent in 2008. The average 401(k) account balance moved up and down with stock market performance, but over the entire five-year time period increased at an average annual growth rate of 7.2 percent, attaining $86,513 at year-end 2008. The median 401(k) account balance increased at an average annual growth rate of 11.4 percent over the 2003?2008 period to $43,700 at year-end 2008." (Investment Company Institute)
[Opinion] TIME Magazine's 401(k) Plan Cover Story: Bad Facts, Bad Story
Excerpt: "[T]his article is emblematic of the uneven, at times unfair, coverage of 401(k)s during the market decline." (Vanguard Blog)
[Guidance Overview] Chart of 415, Etc., Limits Updated for News Release IR-2009-94
The chart of maximum limits subject to inflation indexing at Carol V. Calhoun's employee benefits site has now been amended to include the newly announced 2010 limits. Among other things, the chart shows limits under sections 415, 403(b), 401(k), and 457, as well as the Social Security wage base and Social Security and Medicare tax rates, for 1996-2010. (Calhoun Law Group, P.C.)
[Official Guidance] IRS Announces Pension Plan Limitations for 2010; Almost All Remain Unchanged
Excerpt: "Effective January 1, 2010, the limitation on the annual benefit under a defined benefit plan under Section 415(b)(1)(A) remains unchanged at $195,000. . . . The limitation for defined contribution plans under Section 415(c)(1)(A) remains unchanged for 2010 at $49,000. . . . The limitation under Section 402(g)(1) on the exclusion for elective deferrals described in Section 402(g)(3) remains unchanged at $16,500. The annual compensation limit under Sections 401(a)(17), 404(l), 408(k)(3)(C), and 408(k)(6)(D)(ii) remains unchanged at $245,000." (Internal Revenue Service)
Are Target-Date Funds the No-Worries Answer to Saving for Retirement?
Excerpt: "How could an investment specifically aimed at someone retiring in just a few years be so heavily into stocks? Shouldn't the money be tucked in less risky options, like bonds and money market instruments? Congress, the Labor Department and the Securities and Exchange Commission all held hearings looking into the funds' marketing and investment strategies. 'The problem with target-date funds is that the underlying message has been, 'Look Ma, no hands!' ' said Steve Vernon, a financial adviser in Oxnard, Calif. 'They tried to make them idiot-proof. But if you put your money in a fund without knowing what they're invested in, you're an idiot.'" (The New York Times; free registration required)
[Guidance Overview] Sponsors of Defined Contribution Plans Must Determine Minimum Distribution Policies by Nov. 30, 2009
Excerpt: "The key decisions facing employers are: Whether to give plan participants the option to waive required minimum distributions from a defined contribution plan for 2009 Whether the defined contribution retirement plan will accept rollovers of amounts that were previously distributed, under the required minimum distribution rules, but for which distribution could have been waived Whether to inform participants who are first subject to the minimum required distribution rules in 2009 of their distribution options and rollover rights with respect to such distributions[.]" (Davis Wright Tremaine LLP)
Rethinking the 401(k) if There's No Company Match
Excerpt: "Without a match, many financial advisers say, the first priority should be paying off high-interest debt, like credit card balances with a 20 percent finance charge. 'It's a hole you've dug, and you want to get out,' said Steve Vernon, president of the retirement counseling company Rest-of-Life Communications in Oxnard, Calif. Why not pay off debt anyway, with or without a match? Because the math works against repayment if you have a match of 50 percent or more." (The New York Times; free registration required)
Current Wave of 401(k) Fee Lawsuits May Be a Harbinger of Things to Come
Excerpt: "The complaint's accusations include charging excessive fees, SJP and VLP effectively setting their own compensation by disbursing plan assets to themselves via Charles Schwab Trust Co. without the sponsor's knowledge, and failing to adequately disclose the revenue-sharing they received. Because the providers effectively exercised fiduciary control over the plan for the purposes of enriching themselves, the complaint says, they violated ERISA. The complaint compares the recordkeeping fees it says were charged by VLP with those of its replacement, Allen, Gibbs & Houlik, L.C. (AGH). If the plan 'had engaged AGH in 2007 instead of VLP to provide recordkeeping services, compensation paid to the recordkeeper for the Plan would have been $2,425 instead of $15,106,' the complaint says, adding that the services provided were 'virtually identical.'" (PLANSPONSOR.com; free registration required)
Asset-Allocation Funds As Retirement Plan Investments: Questions to Ask
Excerpt: "Asset-allocation fund solutions have, to put it mildly, exploded on the retirement plan scene -- aided in no small measure by the sanction of the Department of Labor (DoL) final regulations regarding qualified default investment alternatives (QDIAs). However, the recent market turmoil has drawn a fresh, heightened scrutiny to the philosophy and structure of these popular defined contribution choices and, certainly for plan sponsors, reminded us all that there are differences -- significant differences, in fact -- in how these vehicles are constructed, how they are managed, and even the philosophies underpinning those designs. Now, the 'right' answer for your program will, in many respects, be unique to your program. On the other hand, there are certain basic questions that plan sponsors should know the answers to in choosing an asset-allocation solution." (PLANSPONSOR.com; free registration required)
Is There a 401(k) Fix?
Excerpt: "[Roger Ferguson Jr., chief executive of the investment firm TIAA-CREF, has a solution.] Unsurprisingly, his solution is the one his company already sells -- a 401(k)-like plan that Ferguson says has done a better job of boosting retirement savings than the original. The three-and-a-half-million retirement accounts in the TIAA-CREF system have an account that is on average 50% higher than the average 401(k). Ferguson pitched his company's solution to the retirement savings problem to TIME's Stephen Gandel." (Time Inc.)
What's a More Typical 401(k) Balance: $12K or $86K?
Excerpt: "Several readers asked how is it possible that the typical U.S. worker had an average balance of $86,513 in their 401(k) account at the end of 2008, based on data this week published by the Employee Benefits Research Institute and the Investment Company Institute. . . . [Response from Dallas Salisbury of the Employee Benefit Research Institute:] Great question. That is why the report provides all of the numbers for all participants by many factors including age, tenure, etc. And, for two continuous groups. In the report, those 2003 to 2008 and in the appendix, 1999 to 2008. And, as the comment above notes, the data for those over 60 with over 30 years of tenure provides a picture of what these programs can do for a full career worker. Any average is misleading, but using many averages for different groups, and also publishing medians, allows the user to get a complete picture. Just the facts is the role of EBRI. Not advocacy of what should or should not be. I encourage everyone to look at the detailed study to compare themselves to those fitting their income, age, tenure, to see how you are doing in relative terms." (BusinessWeek)
Hardship Requirement in Proposed Safe Harbor 401(k) Regs Too Harsh, According to Witnesses at IRS Hearing
Excerpt: "Witnesses at an IRS hearing on September 23, 2009 urged the IRS to remove the requirement in proposed regulations that employers maintaining safe harbor 401(k) plans prove 'substantial business hardship' before reducing or suspending required nonelective 401(k) plan contributions. Both individuals offering testimony, Jason Bortz, representing the American Benefits Council, and Robert Richter, vice president of Sunguard, and commenting on behalf of the American Society of Pension Professionals and Actuaries (ASPPA), also called for eliminating the proposed regulations' additional supplemental notice requirements because they are too complex and unnecessary." (Wolters Kluwer)
[Opinion] Why It's Time to Retire the 401(k)
Excerpt: "If you have even peeked at your account statements in the past year, it's painfully obvious that something is wrong with the way we save. The tax-deferred 401(k) plan, and others like it, such as the 403(b) and the IRA, have become our nation's go-to retirement piggy bank. Invented nearly 30 years ago as an executive perk -- one more way to dodge Uncle Sam -- the 401(k) was never meant to replace the employer-guaranteed pension fund, supplemented by Social Security, as the cornerstone of our nation's retirement system. But propelled by a combination of companies looking to cut costs and consumers who wanted control of their retirement destiny, that's exactly what happened." (Time Inc.)
[Opinion] 401(k) Fiduciary Responsibility: Conventional Wisdom and the Law of Unexpected Consequences (PDF)
10 pages. Excerpt: "For almost 30 years, conventional wisdom has maintained that 401(k) fiduciaries can easily fulfill their duties of loyalty and prudence by (1) hiring a competitively priced recordkeeper that routinely deals with plans of their size, (2) using a well-respected investment consultant to advise on selecting and monitoring 'competitively' priced investment options, and (3) complying with the letter (as distinct from the spirit) of the law. Conventional wisdom also assumed that employees are rational adults who are fully willing and capable (educationally and financially) of tackling the challenges of achieving a financially secure retirement. Unfortunately, conventional wisdom, more often than not, reflects what we wish to believe rather than fact." (Richard D. Glass via InvestmentHorizons.com)
Judge Dismisses WaMu Employees Lawsuit vs JPMorgan
Excerpt: "A U.S. District Court dismissed a lawsuit of former employees of Washington Mutual against JPMorgan Chase & Co to recover their retirement account losses after the collapse of the thrift. The plaintiffs filed a case in November 2007 against Washington Mutual asserting the financial company breached duties it owed under the Employee Retirement Income Security Act by allowing them to invest their 401(k) funds in Washington Mutual stock. The funds declined as the stock of Washington Mutual, one of the largest U.S. financial institutions, plunged -- hurt by mounting losses." (Reuters News Service via ABC News)
Average 401(k) Balance Among Consistent Savers Fell 24% in 2008
Excerpt: "Maybe the best that can be said about the effect of last year's market crash on average 401(k) balances is: It could have been worse. The average balance dropped 24% in 2008, according to a study of accounts held by 6 million workers who consistently participated in a 401(k) plan from 2003 through 2008, by the Employee Benefit Research Institute and the Investment Company Institute." (MarketWatch, Inc.)
[Opinion] Is It Important for 401(k) Fees to Be Equitable?
Excerpt: "Increased fee disclosure to plan participants that may result from pending regulatory and legislative initiatives has the potential to bring the issue of fair fee payment to the forefront. Uneven administrative fees can leave plan sponsors open to uncomfortable questions by participants, or may even bias participants against funds that carry the lion's share of the administrative burden. However, creating an investment menu with equitable administrative fees can be challenging. As we just saw, revenue-sharing arrangements -- which are negotiated between the record keeper and the investment managers -- are usually not consistent, and plan sponsors may have no control over share classes that are available to them." (Workforce Management; free registration required)
PSCA's Annual Survey of Profit-Sharing and 401(k) Plans
Excerpt: "The Profit Sharing/401k Council of America (PSCA) has released its 52nd Annual Survey of Profit Sharing and 401(k) Plans, which provides up-to-date information on current practices and trends in profit-sharing and 401(k) plans. The PSCA's survey reports on the 2008 plan year experience of 908 plans covering 7.4 million participants with more than $600 billion in plan assets." (Wolters Kluwer)
401(k) Plan Asset Allocation, Account Balances, and Loan Activity in 2008 (PDF)
68 pages. Excerpt: "Because 401(k) balances can fluctuate with market returns from year to year, meaningful analysis of 401(k) plans must examine how participants' accounts have performed over the long term. Looking at consistent participants in the EBRI/ICI 401(k) database over the five-year period from 2003 to 2008 (which included one of the worst bear markets for stocks since the Great Depression), the study found: After rising in 2003 and for the next four consecutive years, the average 401(k) retirement account fell 24.3 percent in 2008. The average 401(k) account balance moved up and down with stock market performance, but over the entire five-year time period increased at an average annual growth rate of 7.2 percent, attaining $86,513 at year-end 2008. The median (mid-point) 401(k) account balance increased at an average annual growth rate of 11.4 percent over the 2003?2008 period to $43,700 at year-end 2008." (Employee Benefit Research Institute)
DOL Recently Dropped Rule to Allow Brokers Affiliated with Financial-Services Firms to Provide Advice to 401(k) Participants
Excerpt: "'There is no doubt an agreement amongst lawmakers that a greater level of advice is needed for American workers as they save for retirement,' . . . . 'The fact that the DOL has dropped the investment advice rule demonstrates that although legislation is necessary, the proposed rules were too complex and cumbersome to be effective.' [T]he proposed legislation is in many ways much simpler and straightforward and that, while none of the legislation is currently law, there are clear-cut themes that plan sponsors and fiduciaries should be using as potential elements of their plans, so as to put them in a position to succeed when final regulations are approved . . . ." (Human Resource Executive Online)
The World's Greatest One-Page Estimator of Retirement Income and 401k Contributions (and Probably the Only One) (PDF)
Excerpt: "This estimator is intended to nudge employees to: Set an initial account target, Contribute toward their target, Learn more about using their 401k and Obtain a sophisticated projection and qualified advice." (Dennis Ackley)
Answers to the 401(k) Questions that Matter Most
Excerpt: "The information that HR provides to employees about their defined contribution savings plan typically focuses on basic plan facts. That leaves unanswered questions about how to use the plan. [On the target page] are some of the answers employees need to begin using their 401(k) to have the financial future they want (in Jeopardy style, followed by the questions)." (Society for Human Resource Management)
Goodyear to Phase Out Union Pension Plan, Set Up 401(k)
Excerpt: "Under the four-year agreement, nearly all USW-represented employees hired since October 2006 will not be offered the defined benefit plan. Instead, effective Jan. 1, 2010, Goodyear will set up a new 401(k) plan in which the tire and rubber giant will make automatic contributions equal to 3% of employees' pay." (Business Insurance)
Workers Discover 401(k) Plans Are Failing Them in Retirement
Excerpt: "Even before the financial meltdown, financial planners, retirement advisers and public policy experts were citing proof that when it came to providing for any kind of meaningful retirement nest egg, 401(k)s and similar accounts weren't working. At the end of 2006, with the Dow Jones index above 12,000 and booming toward its 14,165 peak the next October, half of private-sector workers in 401(k) plans had account balances of less than $25,000." (The Detroit News)
[Opinion] Statement of Steve Abrecht of the Service Employees International Union Before the ERISA Advisory Council Work Group on Approaches for Retirement Security in the U.S. (PDF)
6 pages. Excerpt: "Our funds, our participants and our sponsoring employers who pay the contributions are going to pay a heavy price for the misdeeds of others and there is no TARP, TALF, PIPP or other program to come to the rescue. This is the new version of trickle down economics and our members, many of them lowwage janitors, homecare workers, nursing home workers and food service workers will bear the brunt of the greed that fed the leverage and the housing bubble of the last decade." (Retirement USA)
[Opinion] Statement of Prof. Norman Stein Before the ERISA Advisory Council Work Group on Approaches for Retirement Security in the U.S. (PDF)
6 pages. Excerpt: "[M]y comments today deal with 401(k) plans, and I will be focusing on two issues: first, why section 401(k) and other voluntary savings plans have failed to implement a coherent vision of retirement policy; and second, why reforms aimed at improving 401(k) plans by making them more like defined benefit plans, and at increasing the number of retirement savings plans by mandating that employers either sponsor a tax-qualified retirement plan or offer payroll-deduction IRAs, are an incomplete solution to the formidable problems of retirement income insecurity." (Retirement USA)
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