Rule would encourage automatic 401(k) enrollment

[EC]

Well, the Labor Dept is at it again:


Rule would encourage automatic 401(k) enrollment
By Kathy Chu | Aug 22 '05



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.

<snip>

The Labor Department says the proposed regulation should give employers who automatically enroll workers in a 401(k) plan some protection from lawsuits if the investment options chosen are "reasonable." Some companies are reluctant to use automatic enrollment for fear that employees whose investments lost money would sue
<snip>

If employers view the Labor Department's guidance favorably, it could be seen as removing the last barrier to automatic enrollment, says Jack VanDerhei, a fellow at the Employee Benefit Research Institute. The IRS has blessed some aspects of automatic enrollment.

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http://www.insurancenewsnet.com/article.asp?a=top_lh&lnid=304400299


I don't like this idea...it looks more like an "Enron protection" plan to me. It amounts to forced investing...

[rurallib]

1. Is this from the same group that says

people should have "choice" on Social Security??? "enron protection"? I'd dub it another "wall street welfare" program.

[EC]

3. agreed.. n/t

[phantom power]

2. If you are going to force peope into investing...

it's only ethical to make it low-risk investments.

Oh, wait. We used to have a plan like that. It was called "social security", I think.

[EC]

4. agreed.. n/t

[Yupster]

8. Every 401 (k) plan

already has low risk choices.

One is always a money market account.

That's usually the default choice until you tell them something else.

I just set one up last week.

There were eight investment options. I chose seven from about 50 choices. The money market choice is automatic.

They were

1. Money Market
2. Government bond fund
3. Corporate Bond fund.
4. Fund of global bonds and stocks.
5. Fund of US bonds and stocks
6. Value stock fund.
7. Growth stock fund.
8. Foreign stock fund.

I was available after my presentation to talk to each employee who wanted to so I could give them advice on which mix of fund fits their family situation best.

[phantom power]

10. Sure, but do you trust BushCo to implement a sensible option like that?

Somebody else already called it: any plan the GOP supports will turn out to be a wall-street giveaway. They may allow people to opt out, but you just know that most people will stick with whatever the default setup is, no matter how badly it screws them.

[Yupster]

19. I don't support privatizing social security

but this thread was about foring people to be in 401 (k)'s. Don't know how it got onto social security. The two topics are entirely different.

[EC]

5. Okay, you guys got me thinking about this today

and I think since ** knows he can't get the SS through, he's going for this to accomplish the same end...this is how he figures he can cut the deficet, forced investment in Wall Street...only thing wrong with this is it would create jobs, just richer stock holders and I don't mean the workers. And since there is a protection for the corporations in it, they can just go Enron....

[RobbinsdaleDem]

6. Happened to me

A few months ago I took a temp job with a large health care organization. A few days after I started, I was online and pulled up my pension plan information for the hospital I had previously worked at. I was astonished to find the name of my new employer on the site along with the name of my previous employer. I had been automatically enrolled to have 2% of my earnings put into a 401K, and both employers used the same investment company. If the new employer had used a different investment company, I wouldn't have known about it until money was deducted from my paycheck. Luckily I was able to cancel the deductions right away online.

My sister-in-law is a small business owner, and she said it's becoming common for employers to do this. It's really irritating, because if a person quits before she has $5,000 in the 401K account, she has to take the money. If it's over $5,000, the money can be left with the company's investment firm. That wouldn't be so bad if someone had a few thousand dollars in the account. It could be transferred to another 401K, and there would be no taxes taken out and no penalty at tax time. But I was working a temp job for a couple of months, part time at that, and I expected to make about $2500. Two percent of that would be $50. I don't think banks or investment firms would be clamoring for my business for a measly $50. Taxes would have been paid on the money if it wasn't in a 401K, so having the taxes taken out would be no big deal. But at tax time there would be a 10% penalty for taking the money out early. While in this case it'd be only $5, it still irks me that I wasn't asked. I picture the IRS taking in some extra bucks from this scheme.

[question everything]

9. You can always opt out of it - as you found out

see also http://www.democraticunderground.com/discuss/duboard.php?az=show_topic&forum=104&topic_id=4396709

And if you have less than $5,000 you can roll it into another retirement account like the 401K that you already have or to an IRA. And if you roll it from one account to another no taxes will be withheld. If it goes to you, 20% taxes will be withheld and you have 60 days to roll it over but you will have to add those 20% taxes.

When you file your income tax return you will get a 1099 from your former employer which will note the taxes withheld and you will include them on taxes that you paid.

I think that this is a great idea. As mentioned above, there is no Enron there. The default is money market which, while retain the original investment, will not grow much. I really do not want to support the ones who would rather spend their money on expensive sneakers and flat TVs and stereos and other expensive toys instead of saving for their retirements.

Of course, in our consuming-dependent economy, if everyone will start saving instead of spending, we may see a recession. Remember, this was the "purpose" of the Bush's checks that we got in the summer of 2001 - to spend them on more useless "stuff."

This is what his daddy did in 1992 - went out to purchase a pair of socks that he really did not need - to set an example..

[RobbinsdaleDem]

12. Agreed. However...

As I said, I would have had to mess with a very small amount of money, and honestly, what investment firm or bank will want my rollover of $50? And when they start taking out fees, what will be left in a few years? There is no way a company should be able to enroll a person in a 401K without the person's consent. I found this very, very devious. I do not agree with forced savings.

And as for spending money on expensive sneakers, flat screen TVs, stereos, expensive toys...we have none of those. We're just so silly and spend our money on our daughter's college education, dental bills, doctor's bills, car insurance, mortgage payments, property taxes, etc. However, we do put 6% of my husband's income in a 401K. We really don't need the government or an employer to decide where we spend our money.

[question everything]

15. I certainly did no mean to imply that you spend on other items

instead of saving, and if it came that way, I apologize. But we all know families that live that way... probably in the receiving states that eventually will be taken care of by us, the donor states.

That story that I cited said that companies will notify the employees that they are doing so and, the story reported, most did not have any problem with that, they were too lazy to do this on their own.

[Mountainman]

14. While you are at it. why not force companies to have a paid retirement

plan like they use to do. That would be a good idea to. And while you at it, why not make them pay enough so you could afford the necessities of life and save to.

[question everything]

16. Look at Bethlehem Steel.

What good is an employer-provided retirement if the company goes out of business? Look at American Airlines and probably Northwest Airlines. Both are trying to get out of their pensions obligations and both are on the verge of bankruptcy. We can argue about bad management and bad decisions, we can argue about lavish compensations for top management, but if a company goes under, the federal insurance plan will not support the pension plans dollar for dollar.

Plus, you never know how sound the investment is that the employer makes in the retirement funds. And while it was possible with large corporations, our economy has shifted to smaller ones where providing this would be too hard for a company that is just starting. About 10 years ago I worked for a company like that and the owners' salary was only $100K - really low for owners.

I personally think that a place of employment should provide good wages (old Henry Ford, that the people who make the car should be able to purchase them comes to mind), a safe environment and a place where interactions between employees, management, customers and suppliers are clearly defined. And forget about the being available 24/7.

I don't think that it is the role of an employer to provide the employees with health care, retirement benefit and all other "fringe" benefits. They came about after WWII when there was a salary freeze.

These benefits have long since being "fringe." I think that whatever the employer pays on my behalf to health insurance should be paid to me, instead, in salary and let me choose which carrier I want and what benefits. After all, we do not always need maternity and pediatrics coverage.

But before such changes take place, strong restrictions are needed to be put on the insurance companies to make it very difficult for them to drop us at the first hint of an illness. For example, they will have to contribute to a state fund that will cover us as the last resort. And, like our employers, we should be able to fully deduct our premiums from our income. Now you can do only that amount that exceeds 7.5% of your gross income.

Of course, universal coverage would be the best, but I don't see it happening anytime soon. I do think, however, that once we are responsible for our health coverage - premium and out of pocket expenses - the rate of increase will really slow down.

OK, down from my soap box.

[Yupster]

17. Pension plans just don't make sense for companies

You have a company sending out 40,000 checks each month to retirees.

Every month you have 200 name changes to process, 400 address changes, 150 death settlement claims.

You get back 300 checks a month with undeliverable addresses.

Did the person die? move? change her name?

You don't know.

You get 25 checks tied up in the courts each month.

So you have a whole department of workers who do nothing but try to handle all these claims.

At some point the company has to decide why its in business. Is it in business to sell tires and make money for the owners, or is it in business to send out checks to retirees?

The easy answer is to dump the pension for a defined contribution plan like a 401 (k) or Simple IRA. When the person leaves, you give them their account to rollover to an IRA, shake their hand and you're done with them.

Soon the only companies which will still have defined benefit plans (pensions) will be government agencies where there aren't stockholders who care about the bottom line.

[Yupster]

7. I set up 401 (k) plans

for smaller businesses, and I had never heard of automatic enrollments other than for company matching accounts.

It just seems lazy to me.

I go out and do a presentation for the workers and almost all of them sign up, but some people have good reasons not to even if there's an employer match.

Seems like a bad idea to me.

[Doctor_J]

11. But,... shouldn't we trust the PEOPLE to make up their own minds?

this sounds like DEPLAB wants to take money out of the peoples' hands and give it to the 401(k) managers. More Big Government from the admin that gave us a 500B deficit.

[Mountainman]

13. The company I just left has a 401K plan and the majority of employees make

$11/hr. Now that isn't enough to pay rent, food, utilities and gasoline yet they could be forced to take less home by this plan. And some cute repugs want to force people to pay for medical insurance out this too.

We had the 401K representive come to talk to everyone and noone showed up. I told the HR lady that people don't make enough to invest and she just looked at me and screwed up her face.



So what we have is a society that doesn't have to care that people don't make enough money for the necessities of life. This is the ownership society.

[Yupster]

18. As a 401 (k) representative

I would be very dissappointed if no one showed up, especially if the account had a match on it.

I know some people really can't save, but man -- $ 25 a month?

Really no one could save that?

A lot of people blow that at 7-11 even month.

The last one I did was so very satisfying.

There were 22 workers and last report was that 21 of them signed up. There is a 3 % match. The workers were thrilled at the opportunity to save and these guys aren't highly paid. Most were first generation immigrants from Mexico, a group of people I love working with. Many work hard to get ahead and often start their own small businesses.

Some of those people in your company will surely look back years from now when they're fifty and starting up a retirement savings thinking, man if I only would have started this 20 years ago when that guy asked me to. I hope some of them reconsider.

Did the company representative do a lousy job explaining it maybe?