401K Plans

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TRyan
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401K Plans

Post by TRyan »

Worth the read ...

http://cbs.marketwatch.com/news/story.a ... iteid=mktw

The problem, Arnone said, is that defined-contribution plans were never intended to be workers' main income stream in retirement. Instead, the intent was that they would act "as a supplement to pensions and social security," he said. "It's the accidental revolution in retirement planning. A few people discovered it, said this is a neat way to save taxes. It has taken off and become the primary plan."

Retirement planning was originally based on a three-legged stool of social security, a traditional company pension plan and an employee's own savings and investments, including a 401(k), Arnone said. Two of those three legs were defined-benefit plans, ensuring retirees a set income stream each month.


... And if SS goes we'll be balancing on a 1 legged stool !!
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WiseNLucky
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Post by WiseNLucky »

Tryan:

This article points out a problem that I've tried to address with my friends and family. Essentially, employers are swapping one big leg (pension plans) for another [potentially] small leg (401K). But workers themselves aren't really catching on. As a result, they are not saving the tremendous sums they need to in order to have sufficient retirement income.

The horse is already out of the barn in relation to defined benefit plans and it ain't going back in! Unfortunately, workers are acting like there is a "secret' horse in there somewhere. :shock:

The only consolation I can take from this is that Bernstein assures me that those who have prepared will be better off than those who haven't. Hopefully not another ant/grasshopper story.
WiseNLucky

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BenSolar
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Re: 401K Plans

Post by BenSolar »

TRyan wrote: ... And if SS goes we'll be balancing on a 1 legged stool !!

And given the crummy investment options in many 401ks, that one leg is not nearly as robust as it could be. Mine offers only 1 index fund and has no options in the following asset classes: REITs, inflation indexed bonds, small cap value, emerging markets. Plenty of 'growth' oriented options including the only small cap and international funds. :(

There oughta be a law ... maybe. 401ks should offer at least: total stock market index, total international index, total bond index. Preferably should offer REIT index and inflation protected bond index.
"Do not spoil what you have by desiring what you have not; remember that what you now have was once among the things only hoped for." - Epicurus
TRyan
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Post by TRyan »


401ks should offer at least: total stock market index


Wish mine offered the total stock market index.

Can't complain too much ... a friend of mine said his 401K fund manager KEEPS THE DIVIDEND AS A FEE. I told him that was CRIMINAL! With no corporate matching funds, all they get is price appreciation - if any - in thier plan.

The leg on his stool is infested with termites.
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therealchips
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Be glad you don't lose your 401(k) when you change jobs

Post by therealchips »

401(k) plans have a great advantage for people who change employers several times during their working life. Having just one or two employers before retirement is becoming rare. When you move to the next employer, you can keep whatever is in the old 401(k), maybe rolling it over into your own IRA (which I would prefer) or into the next employer's 401(k). If you had a company-funded retirement plan, you probably lose it completely when you quit after "only" five, ten, or fifteen years employment. Even if you last long enough with the company to be vested in its retirement plan, leaving "early" means you lose out on the companies' preference to back-load retirement benefits. That back-loading helps the long-time employees, penalizes the people who change jobs, and reduces the companies' retirement costs.

I know whereof I speak. I worked for 33 years, but the basis of my (meager) corporate pension is only the last 15 of those years. The other 18 years contributed nothing to my pension since I didn't last long enough with those early employers to be vested. (That pattern of moving from company to company was common in the high tech and defense industries where I worked and is increasingly common in all industries.) Further, I was not eligible for an IRA in those early years because IRS said I was covered by a pension plan at work, which was true only in theory. So, that way I got no corporate pension benefits and no access to IRAs either. :roll: Every generation has its problems. Since I enjoy managing money, I'd rather have this generation's problems than the ones we had in the "Silent Generation" -- the generation after the GI generation and ahead of the Baby Boomers. (It is not my nature to be silent. We seem to be silent only by comparison with the noisy horde, er, articulate group right behind us. :lol:)

Many people fritter away the great advantage of personal ownership of 401(k) assets by spending the money when they change jobs rather than rolling it over. Their slogan must be "Let tomorrow take care of tomorrow." I heard someone declare complete financial irresponsibility by saying "Some people are savers and some are spenders; I'm a spender." as if personal discipline was impossible. Sure glad I didn't marry that woman!
He who has lived obscurely and quietly has lived well. [Latin: Bene qui latuit, bene vixit.]

Chips
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rob
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I just don't understand.....

Post by rob »

Some 401K plans allow in-service rollovers. I just don't understand why this is not made mandatory for all plans :evil:, say once each year (maybe at the time of all the benefit re-enrollments). You would obviously not be allowed to move un-vested monies. Also maybe there is a lag in the monies that can be moved to ensure that the discrementation requirements are meet (I think they are set a couple of months into the following year).

I do understand why each person cannot be given a choice of vendor if the employer must administer the thing, since they would discontinue the plans due to complexity and cost (options like the recent LSA & RSA would be too good to be true IMO).

This does not address a LOT of issues in plans but should politically be easier to implement and in the end, a pragmatic half-solution is better than nothing. It gives the people with philosophies incompatible with the plans a chance to move where they want and gives those who like the plan or don't care nothing to do (hey some suckers.. er investors prefer go go growth funds :shock:). The process could be handled with the exact forms that are used when you leave an employer.

I suspect that the "don't care" group is by far the largest :?, so it would not increase paper-work much at all.
Rob

Its a dangerous business going out your front door. - J.R.R.Tolkien
TRyan
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Post by TRyan »

Here's some ways to check the legs on your stool ...

http://moneycentral.msn.com/content/Ret ... P34680.asp


Employees of one Connecticut company, for example, found that the administrator for their 401(k) plan had diverted their retirement-plan money for his own benefit; he is now in jail, but most of the money is gone.

What to do if you think something isn't quite right in your retirement plan
1. Find out who manages your retirement plan (known as the administrator; this is in your documents).
2. Ask your plan administrator for documents such as the Summary Plan Description, Summary of Material Modifications and Individual Benefit Statements. These will provide a clear snapshot of how the plan is doing.

3. Contact the appropriate federal agency and ask officials to investigate. Call your local office of the U.S. Department of Labor's Pension and Welfare Benefits Administration if you think the trustees or administrators are not carrying out their duties. If it looks as if they have taken loans from the plan, call the Internal Revenue Service. (You might even get up to 10% of any penalty taxes the IRS collects as an Informants' Reward. To qualify, you have to file a written complaint.) If you think that your retirement plan has been victimized by embezzlement, extortion or kickbacks, contact the FBI.

SOURCE: U.S. Department of Labor

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BenSolar
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Re: I just don't understand.....

Post by BenSolar »

rob wrote: Some 401K plans allow in-service rollovers. I just don't understand why this is not made mandatory for all plans :evil:, say once each year (maybe at the time of all the benefit re-enrollments). You would obviously not be allowed to move un-vested monies.
...
This does not address a LOT of issues in plans but should politically be easier to implement and in the end, a pragmatic half-solution is better than nothing.


I like this idea a lot! I'd never heard of a 401k that allowed rollovers without termination of service. As it is, I see it as a prime reason to change jobs in the next couple of years so I can get that money invested better. One more year and I'll be vested in a miniscule pension. Might be time to go job hunting. Of course given the job environment, I might be lucky keeping the job I have now. :?
"Do not spoil what you have by desiring what you have not; remember that what you now have was once among the things only hoped for." - Epicurus
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