Rule would encourage automatic 401(k) enrollment

[halsaxby]

link:http://news.yahoo.com/s/usatoday/20050822/bs_usatoday/rulewouldencourageautomatic401kenrollment|http://news.yahoo.com/s/usatoday/20050822/bs_usatoday/rulewouldencourageautomatic401kenrollment]

The Department of Labor expects to propose a regulation by year's end that will encourage companies to automatically enroll their workers in 401(k) plans.


"We want to remove barriers for people to save for retirement, and automatic enrollment really addresses one of the problems that people face: They may be overwhelmed with the responsibility of saving for retirement," says Ann Combs, assistant secretary at the Labor Department's Employee Benefits Security Administration.


Once the regulation is proposed, the public will be able to comment on it before it becomes final. The regulation could affect millions of workers in 450,000 retirement plans.


In the typical 401(k) plan, employees decide whether to invest and, if they choose to, how much and where to put the money. But 19% of large employers automatically enroll workers, at an average rate of 3% of annual pay, according to research firm Hewitt Associates. This compares with 7% of companies that did so in 1999.

[Moderator]

1. Hi halsaxby -

Please edit your post to four paragraphs, please, and change the headline to read Rule would encourage automatic 401(k) enrollment, as it says at the link, per LBN rules. Thank you.

[Tandalayo_Scheisskopf]

2. In other words...

Mandatory investment in the stock market.

Pirates. Freebooters. Churls.

[Rex]

3. So the workers retirement is tied up in one company?

Talk about company loyalty. Just one more control point IMO.

[mondo joe]

18. No. If you leave the company you roll your $ out of their plan. n/t

[Coastie for Truth]

4. Issue isn't "automatic enrollment"

it's what it always has been under ERISA - shielding the employer from the employer's own dumb investment decisions.

[elehhhhna]

5. It's not mandatory participation. One can opt out. (IF they're informed

of their options, of course.)

[zoeb]

6. oh hell yeah, if you got a 401k , they can reduce your SS ...

reductions or no Social Security for some. How big of an 401k can you manage on minimum wage?

[CountAllVotes]

8. that is one reason I never had one

I couldn't see investing money into the stock market when I was earning a low wage, barely enough to exist on much less have that money in the stock market.

Luckily the company that retired me hung-on to my money for the past 15 years and next year it is payola time should I care to cash out or I can wait another 9 years to get the full amount collectible.

I really DO NOT LIKE the stock market, especially now. I made a few bucks when President Clinton was in charge, but nowadays, I am inclined to have zero in the stock market which has been doing really lousy for a very long time now.

Some option eh? Invest in a 401K and watch it all *disappear*! :grr:

[zoeb]

13. as a Federal employee, I have part of my retirement in

a 401k plan called Thrift Savings. You have the choice to get in bonds or stocks...not much retirement if you stay in bonds it doesn't earn much for retirement if the market tanks a 100 points every week. There is so much uncertainty in the market with oil prices and the war that it makes it a big risk to invest at this time. It really sucks!!!

[CountAllVotes]

14. yes it is a big risk

and loads of uncertainty. I strongly prefer insured investments like CDs, I-bond, etc. I'm doing well with these investments btw. At least I know they aren't going to disappear. When you have money in the stock market and they pay the taxable dividends (same case with a 401K?) and then you lose the money the next month, you still get stuck for having to pay taxes on the dividends that you lost. I see no real reason to even have 2 cents in the stock market these days - far too volatile and very corrupt!

[zoeb]

20. 401k isn't taxable until you start withdrawl of the money

then they tax it the current rate...god knows what that will be in 12 years.

[Iowa]

31. Hi CountAllVotes...

Just a couple of comments regarding the stock market:

--401(k)s are tax deferred. You're taxed at the time you withdraw - which would usually be after retirement. So dividends aren't taxed annually like they are in taxable accounts. Every cent you withdraw is taxable in the year you withdraw it.

--You might be right about your decision to be out of the stock market altogether. I don't think anyone can know in advance what the market will do, however. I've been at it a long time, and in my experience, the best time to be in the market is when everyone else is the most pessimistic. Why? Because when you have large numbers of investors who expect the worst, it's a good bet to assume those people are largely out of the market and sitting in cash, or bonds. Since they have already sold, they can't really drive prices down by selling. They can either maintain the status quo, or buy and drive prices up. It's when the masses are optimistic, that I become worried.

That being said, I am at a fairly low (for me) stock allocation - about 30%. I also have a fairly heavy allocation of TIPS paying 2.5%, and some CDs, and I-Bonds.

Everyone must decide for themselves, but there are also risks involved with being out of the market - the primary risk being that inflation may steal your purchasing power over long periods of time (if you swear off stocks for many years). The old-timers here can tell you that losing purchasing power to 1970s type inflation is as bad as losing money any other way. Money is only good for what it will buy. There's no perfect answer, although TIPS and I-Bonds are about as close as you can get to a panacea (if you trust the BLS not to cheat on the CPI - and I don't trust them). Anyway, good luck to you.

[LiberalFighter]

33. That is the plan that gw*dipshit put up as a reason to privatize SS

What he failed to tell everyone is that the TSP was modeled after 401k in the private sector. AND that fed govt employees still have Social Security and a federal pension.

gw*dipshit is suggesting that after Social Security is gone all that will be left will be just his great private security plan. In addition, fewer and fewer companies are offering pension plans.

[Pretty_in_CodePink]

16. Or select low risk funds cash funds and bond funds

And watch your money grow at a slower pace but be supplemented by what the employer matches.

[formercia]

7. If Fearless Misleader can't get His Social Security plan

one way, he will just have it mandated. His buddies in the investment markets still get your money. End run.

[CountAllVotes]

11. yeah my company is pushing Fidelity now

to the current employees. Luckily I'm not part of that plan. I can roll the money into my IRA next year. I'm thinking I should snap it up now while it is still there before they go broke or something.

what a fine mess * has gotten our country into!

:grr: again ...

:kick:

[Dover]

9. "encourage" or enforce.......that is the question.

[punpirate]

10. If companies were required...

... to put the money into the account at the time it was deducted from the worker's paycheck, and the company were required to match with 3%, the 3%ers might have a chance. But, current law allows the employer to hold that money for ninety days, which is like a free loan, and there's no requirement for the employer to match to any significant degree.

This sounds like it's of more benefit to the employer than the employee, especially if they're writing rules to protect employers from employee class-action suits for negligence.

[halsaxby]

12. I interpreted automatic to mean mandatory.

What a great way for a company to sell its stock to a captive market. It worked out so well for Ken Lay and his buddies.

[Coastie for Truth]

34. No longer permitted (Sarbanes-Oxley)

"What a great way for a company to sell its stock to a captive market" is no longer permitted (Sarbanes-Oxley). They have to give you a choice of plans - including plans that do not include employer stock - in order for the employer to deduct its ("match") contributions.

[Pretty_in_CodePink]

17. Are you sure about being able to hold for 90 days?

The company that I invest my company's 401k with states that payments cannot be held and should be made promptly after withholding them. I don't remember a stated time frame though I think 90 days would have caught my attention. I didn't think much of it as I make the payments within several days of payday. I find it hard to believe that if there were a 90 day window the company would not clearly state so. As it is my experience that these types of companies typically advise to the benefit of the employer.

[punpirate]

39. I guess I have to modify what I said...

... after looking at ERISA and the changes in regulations pertaining to contributions. At the time I first entered a 401(k), under law, a company could hold contributions 90 days--that was considered the outside date of safe harbor before those contributions had to be considered "plan assets" and be deposited, and that was the case up until the time when increasing numbers of companies began to default.

Around 1996, the Department of Labor began to rewrite regulations to decrease those limits and to write rules with strict limitations on how companies could interpret delays.

So, you're quite right with regard to current rules. I was going by what I was told--and what the regulations were--at the time I first entered a 401(k) plan.

Cheers, and thanks for the update.

[Heddi]

15. What if I don't WANT a 401k

Hubby had a 401k at his job and he was able to cash it out when he quit because he worked there over 5 years---the deal was, you could transfer it to another company, but not 'cash out' until you worked there for 5 years. He got about $1100 from it.

I worked at the same company and had a 401k that I had. When I quit, I didn't work there for 5 years. When we moved (from SC to WA), I didn't get a job that offered 401k, couldn't transfer it, couldn't cash it out or anything. I've never had a job since then that offered 401k and recently I went online to see how much was there and apparently because it's not been 'transferred' in a certain amount of time, my money is gone. It was only worth about $200-400 when I quit, but that's alot of money when you have none.

I don't know WHO got my money, but someone has around $300 of money that's not theirs, and they got ALOT of it because the company I worked for had a virtual revolving door with regards to employees.

I have better return just keeping my ENTIRE check and putting the $$ into savings--which we have about $10,000 in savings right now. That's alot more than I would have had with a 401k, especially since I've never worked for a job longer than 5 years.

[Pretty_in_CodePink]

19. It sounds like your company requires that one be vested for 5 years to

keep the amount matched by the employer. If one cashes out their 401k before retirement age there is a 10% penalty and taxes are owed on the money so these are deducted before payout. Money from a 401k can always be transfered either to a new 401k or an IRA.

Likely your money went back into the general fund as unclaimed money. You should call the company that holds the investment and inquire about the money. Perhaps they will allow you to claim it and transfer it to and IRA. Talk to someone about the specifics and try to get the money that way. Also it may be that since it was a small amount they transferred it to an IRA. That's what could happen to money of a small amount that my employees haven't claimed. They wouldn't get the amount that I matched but would get what was deducted from their checks. Good luck!

[Heddi]

21. I guess my problem is

that I signed up for the 401k when I was around 23 or so. I'm 29 now. I don't want to open an IRA (i'm not even employed). My husband is the only one working right now and I like having flexibility with our savings. Right now we have about $10k in the bank. Sometimes we don't touch the money for months, other times we NEED to use $700 or $500 for school or new computer or whatever. It doesn't make sense to me to have an additional savings (IRA) that I can't touch no matter how much I need the money.

Perhaps once I get out of school and have a stable job (no sooner than July 2006), I'll think about having an IRA/401k, etc....

It seems like a bit of a hassle to track down the company that held my $$ (the company I worked for has changed 401k companies about 5 times since I left) for such a small amount. if it were $1100 like hubby got, I may, but I have too much on my plate to track down a few hundred bucks I haven't seen in nearly 10 years :)

Thanks for the advice, though. I'll keep it in the back of my mind :)

[mondo joe]

23. 401k is like other benefits - it has a $ value you might prefer to get

in cash. You might say "I don't want medical coverage - I don't go to the doctor. I'd rather get the $ they're putting toward my premium in cash to spend how I choose".

Of course 401k plans generally do allow for withdrawl for emergencies anyway.

[Heddi]

27. I actually worked for a company that let you do that

with regards to medical insurance.

If you could prove you had insurance through some other source (Private, spouse's job, etc), they would give you the amount they'd pay towards your...whatever in pre-tax cash in your check.

I think it was around $120 a month you could get if you had other insurance. I thought that was a good deal. Of course, I didn't have other insurance, so I took theirs which was a GREAT health/eye/dental plan that I think I only paid about $80 a month for insurance.

[mondo joe]

29. But even in that case it's IF you can prove you're covered through some

other source.

401k plans are another form of coverage.

I can appreciate that you woulds have preferred the cash - but benefits plans are generally developed to appeal to the broad population.

[Heddi]

32. OH I completely understand that

and I'm very thankful of companies that offer benefits because I have no other source of health insurance other than my job (when I'm working) or my husband's job.

I do agree that they benefit the broad population, but I do not agree that employees should be forced to enroll in a 401k if they do not want to, even if they can 'prove' that they have another retirement plan.

I see 401k as different from health insurance---if your employees have health insurance (either through you or their spouse or another way), you can be assured that John isn't going to have to take 4 weeks off because he didn't go to the Dr when he had the flu and now he's got pneumonia. You lose more money as an employer if your employees get ill or sick or whatever and have no means to cover it, which generally would result in more time off.

But, I don't see how an employer is affected if their workers do or don't have a retirement plan.

Maybe my aunt martha is making me sole heir to her estate and I know that when she kicks the bucket, I'll have a fully-paid for house and lots of cash for my 'retirement'.

I see the benefit in having mandatory health covereage, but not mandatory retirement coverage.

[Pretty_in_CodePink]

26. I'm sorry the company you worked for did such a poor job with your 401k

Fortunately you are still young so you will have time to save. Best of luck getting your financial footing now.

[Heddi]

30. Trust me, the 401k was the BESTthing about them

in many regards.

They were, and still are, a horrid, horrid company to work for. However, they are one of the highest-paying jobs that one can get in the area that I lived in (especially for the type of jobs hubby and I had), and they know they have you by the short hairs and are more than happy to remind you of that at every available opportunity.

Once, my husband got a raise AND a promotion to department manager. His raise was .20 an hour. TWENTY CENTS AN HOUR. He asked his boss if they were trying to insult him, or if it was unintentional. They laughed and said he should talk to the guy who worked for the company for close to 30 years and just got a .10/hr increase.

BTW--this company has record-high profits and the owner get paid several million a year. But someone who's been there for 30 years (and never missed a day of work) get a dime an hour more.

yeah. they're crummy. And we've got very stable financial footing on our own accord and without the need for a 401k or any other risk-based savings plan.

[Coastie for Truth]

35. After the steel and auto bankruptcies, and mergers of the 1980's

the employer has got to "trustee" it out to a "non-related, non-affiliated" financial service company.

[Pretty_in_CodePink]

36. Right but they pick the trustees and investment companies to work with

Frequent changes smack of irresponsibility in handling the 401k of its employees.

[Coastie for Truth]

38. When I worked for a start up

our outside lawyers advised us to be hyper cautious to avoid liability. To some extent the employer is a "fiduciary" or "trustee" of those funds -- along with the fund manager. And since the employer works through its "officers and directors" - the "officers and directors" are also "fiduciaries" or "trustees" of those funds (hence "officers and directors liability insurance" - which now covers dipping into the 401(k) or mis-managing the 401(k) or the choice of the 401(k) fund manager).

Here's where it gets interesting - it is a criminal offense for an "officer or director" or employee to "accept anything of value" from the fund manager for steering business to the fund manager.

[Iowa]

37. Hi Heddi...

I have a daughter who is 29, and your situation sounds very similar. I think you are on the right track. It's a good idea to have 6-12 months living expenses in an emergency fund before you contribute to a retirement plan. I just discussed this very issue with my daughter. I try to get the best rate of return I can on my cash; I'm getting 3.5% now at www.emigrantdirect.com for a savings account. That's the best I've found. You can transfer $ online between your account at Emigrant and your checking account whenever you want. No fees whatsoever. Easy to set up. I have used ING too, but they offer a lower rate right now. You might also keep some of your emergency stash in a short term CD at ING - this is what my daughter is doing.

You sound like you know what you're doing. Good luck to you!

[mondo joe]

22. Transfer or cash-out are not the only options.

In most cases you should have been able to roll it over into a few options that would have kept the money yours (other than any percentage in which you were not vested).

[Heddi]

24. They gave me no options

Hubby and I quit at the same time. He got a packet about how to either cash out, or transfer his 401k.

I asked about mine and they (HR) brushed me off with a "you haven't been here for 5 years, you're not eligible to transfer it".

hoo-kay.

Of course, the company we worked for was not anything resmbling the epitome of morals or righness with regards to employees.

I consider that money gone gone gone now. I don't think I'll ever see it again.

[mondo joe]

25. How long WERE you there?

If you weren't vested AT ALL then I guess you'd have no option.

But in your earlier post you spoke of not having a job with a 401k you could transfer it TO so I thought that was the issue.

[Heddi]

28. I was there for about 2 years or so

and then I left, hubby and I moved from SC to WA, and I got a job with a company that didn't offer 401k. I worked there for 2 years or so, then quit to go to school and have had on-and-off part-time jobs since then.

If I had a job that offered 401k, I would have been interested in transferring it to somewhere, but I didn't so I just didn't worry about it.

[KayLaw]

40. Remove barriers to save?

What barriers? The article says the typical 401(k) lets the employee chose whether or not to invest or how much to invest. . .I'm really reading this as enforced savings in offered plans. It sounds like an automatic deduction like SS. Thanks, but we'd prefer the freedom to decide for ourselves. Isn't it our money?

[SoCalDem]

41. Barriers...

Like?

Not making enough per paycheck to even cover your ent, gas, utilities, daycare?

Like THAT???

There are MILLIONS of people who have THOSE barriers..they literally cannot "afford" to have even 1% withheld from their checks...

I used to CASH these piddly paychecks, and I can tell you that when a woman came through my line with a couple of kids and a paycheck for $325.00, it broke my heart.. No doubt this woman workes at a grubby job, and left her kids in "iffy" daycare, and probably lived in crappy housing.. Somehow, I doubt that she would even be interested in a 401-k..