Company pushing retirement saving

[emdav]

We got a newletter in the mail today from dh's employer. They are really pushing their retirement plan. It said 26% of associates don't use the plan and 35% of associates contribute less than 6% (the amount needed to get the full match.)

They are determined to change these figures. If you aren't enrolled, they are going to automatically enroll you for 3%. If you contribute 2% or less, the are going to automtically enroll you for 3%. For everyone else, they will increase your savings by 1% unless you already contribute at least 6%.

You can opt out and choose not to participate but they are making it automatic to participate. This change does not effect us but I wonder if people will see this as positive or negative.

 

[imsayin]

You can opt out and choose not to participate but they are making it automatic to participate.

You're going to see this as the standard going forward. More companies are going to do this. I think it is a good thing. Young people can use a push in the right direction (and you can opt out, you just have to think more about it).

 

[dvcgirl]

Well, of course it's a postive thing, unless 25% of our population enjoys the taste of Frisky's Buffet, which is what they'll be eating in retirement if they don't get started. Actually, the numbers in your DH's company reflect exactly what's happening in our nation. 25% of all workers never even bother to sign up for their 401K plan, and so they're hoping that if they automatically enroll employees that they'll be lazy enough to just leave it alone.

The other number is in line with what most people do too....contribute less than the amount they need to put in to get a full match.....essentially leaving free money on the table.

 

[kellia]

Wow, I wish dh had matching funds!

 

[imsayin]

This has been bugging me since I first read it that I had heard about this happening. In Kiplinger's there was an article on retirement. Congress passed legislation that allows employers to automatically enroll employees in 401ks (apparently you couldn't automatically enroll employees in the past). The article says it is a great thing.

 

[TomD]

For the last 10 years the company I worked for never offered a 401K. I did it on my own. The Company I work for now has a great 401K plan and I put 15% in to make up for the years I only put 3-5% in.

I know I will never really catch up but it makes me feel better knowing I am trying..lol

 

[storybookstory]

This has been bugging me since I first read it that I had heard about this happening. In Kiplinger's there was an article on retirement. Congress passed legislation that allows employers to automatically enroll employees in 401ks (apparently you couldn't automatically enroll employees in the past). The article says it is a great thing.

It's a great thing because
1. People who aren't saving for retirement because they are too lazy to fill out the paperwork will be saving, and not even notice it because it will be coming out of their paycheck from Day 1 at their new job.

2. It's going to mean a very large infusion of cash into the stock market. Plan on a very bullish market this year!

Now I have a question for those more informed than I am -

DH's only problem with this law is that he says many 401K plans are set up such that 100% of the investment goes into company stock (ie. Enron, where most of the retirement plan was in Enron stock, thus now those people have nothing left). Is this true that most 401K plans are like this?

 

[Hedy]

It's a great thing because
1. People who aren't saving for retirement because they are too lazy to fill out the paperwork will be saving, and not even notice it because it will be coming out of their paycheck from Day 1 at their new job.

2. It's going to mean a very large infusion of cash into the stock market. Plan on a very bullish market this year!

Now I have a question for those more informed than I am -

DH's only problem with this law is that he says many 401K plans are set up such that 100% of the investment goes into company stock (ie. Enron, where most of the retirement plan was in Enron stock, thus now those people have nothing left). Is this true that most 401K plans are like this?

Just my observation, but it seems to me that most autoenrollments are into the most conservative funds the plan offers-a Money market or a similar fund.

 

[Dobie]

It's a great thing because

DH's only problem with this law is that he says many 401K plans are set up such that 100% of the investment goes into company stock (ie. Enron, where most of the retirement plan was in Enron stock, thus now those people have nothing left). Is this true that most 401K plans are like this?

I think that the new federal law that allows automatic enrollment bars companys from requiring that employees buy only customer stock. However, I think that companys might have more leeway for their match money.

However, one thing to remember is that money put into a 401K is tax deferred! Which means, you get an automatic bonus of whatever your tax bracket is. And, this is deducted from your AGI on your tax return, so it can make you eligible for more tax breaks. It's a good deal!

 

[mickeyfan2]

Presently most plans are opt in plans. The government is looking at making all plans opt out plans. Opt in plans tend to have lower enrollment then opt out plans do. Many people are just too bothered to do any opting.

 

[dvcgirl]

Just my observation, but it seems to me that most autoenrollments are into the most conservative funds the plan offers-a Money market or a similar fund.

This is my understanding as well. Most default plans are money market funds, which are far too conservative for retirement savings.

 

[disneysteve]

This is my understanding as well. Most default plans are money market funds, which are far too conservative for retirement savings.

Of course, putting 3% into a money market and getting the company match is 1000 times better than putting zero% into nothing. I think the hope is that once people are forced into the plan (and I hate to use the word forced, because that implies it's a bad thing) more people will take the time to review their investment options and actually take an active role in managing their money.

As for company stock, I know the new law had provisions about that also but I don't know the details. I believe part of it was that employees will have more freedom to sell company stock and not be forced to hold it long term.

Now if they can just figure out a way to keep people from cashing out their plans when they change jobs.

 

[tedhowe]

This is my understanding as well. Most default plans are money market funds, which are far too conservative for retirement savings.

This is true, but if it is autoenrollment in a 401K plan with a match, then the employee is likely to get anywhere from 50% to 100% extra on their money right away.

Over time, this will accumulate, and eventually when they wake up about retirement, they'll still be WAY ahead of the game with a good capital base to shift into more appropriate investment options.

Of course, many of those people will take a look at the 401K after working for 10 years and think: "Wow, that's a lot of money... I can go buy that bigger house if I take it all out now."

Bottom line: it will help those people who just never got started investing because of inertia or lack of knowledge, but those who are spendthrifts will still spend the money if they want to.

 

[tedhowe]

Of course, putting 3% into a money market and getting the company match is 1000 times better than putting zero% into nothing. I think the hope is that once people are forced into the plan (and I hate to use the word forced, because that implies it's a bad thing) more people will take the time to review their investment options and actually take an active role in managing their money.

As for company stock, I know the new law had provisions about that also but I don't know the details. I believe part of it was that employees will have more freedom to sell company stock and not be forced to hold it long term.

Now if they can just figure out a way to keep people from cashing out their plans when they change jobs.

Steve, you beat me to both of my points by 2 minutes

 

[disneysteve]

Of course, many of those people will take a look at the 401K after working for 10 years and think: "Wow, that's a lot of money... I can go buy that bigger house if I take it all out now."

those who are spendthrifts will still spend the money if they want to.

I think the next step should be to tighten the rules and limits on borrowing from a 401K. It should only be an option for catastrophic situations - disability, death of a spouse, serious medical problems, etc.

 

[dvcgirl]

Of course, putting 3% into a money market and getting the company match is 1000 times better than putting zero% into nothing. I think the hope is that once people are forced into the plan (and I hate to use the word forced, because that implies it's a bad thing) more people will take the time to review their investment options and actually take an active role in managing their money.


Now if they can just figure out a way to keep people from cashing out their plans when they change jobs.

Oh, for sure, something is better than nothing. But the 3-4% you'll get in a money market fund just isn't going to do the job. This is why I love the Targeted Retirement Funds. Heck, I'm fairly educated when it comes to investing and we've been putting money into these funds lately....they are a great option.

Your second point is another valid one Steve. We saw the OP say that 26% never even signed up for the 401K, 35% contribute less than necessary to receive the match....these numbers are right in line with national averages. And the other horrible fact is that 50% of people who move from one job to another cash out their 401Ks, take the penalty and spend the money. No wonder those balances are so low....

 

[tor]

I think the next step should be to tighten the rules and limits on borrowing from a 401K. It should only be an option for catastrophic situations - disability, death of a spouse, serious medical problems, etc.

If you are paying yourself back with interest I see no problem in borrowing the portion that is invested in conservative funds. The borrowing I think we need to see tightened is the Federal Gov's borrowing of Social Security.

 

[dcfromva]

Now I have a question for those more informed than I am -

DH's only problem with this law is that he says many 401K plans are set up such that 100% of the investment goes into company stock (ie. Enron, where most of the retirement plan was in Enron stock, thus now those people have nothing left). Is this true that most 401K plans are like this?

Each company is different. For DH's 401K, he can invest his portion of the contribution in one of about 20 (mostly diversified) choices. Until recently his match was strictly in company stock and he couldn't move those funds (unless he left his job). They changed the rules and now (effective this month) he can move his match out of company stock.

-DC

 

[disneyfreakk]

I think this is a great law! Too many people are scared of retirement planning/saving. Honestly, I think this is the governments way of preparing the public for the decline in social security. I jumped on the 401k plan when my company offered it! My DH and I both put in 15% of our pay with a 100% match up to 4%. And our company does profiet sharring, which is a part of our 401k. of course you have to stay with the company for 6 years to be fully vested. ( DH and I work for the same company. ) Its been 5 years since we enrolled and we have quite the nest egg. And seeing how I am only 30, we will be all set for retirement. I dont even include social security as a part of retirement.

 

[kfeuer]

I don't think automatic enrollment is a terrible thing, but I seriously doubt their motives behind it are all that altruistic. I don't know the exact rules, but I know in some plans there's a limit on how much the top earners in a company can save depending on how much the lower wage earners are contributing. Therefore top management benefits if contributions go up among the lower ranks.