No more 401K matches anymore? - Article

[TwixVoy]

Interesting article. Bastards

http://articles.moneycentral.msn.com/RetirementandWills/InvestForRetirement/No401KMatchNoProblem.aspx

[DJ13]

1. Reads like advance PR to forgive corporations that eliminate matching contributions

What scum these people are.

[avaistheone1]

2. What are they doing about those disgustingly huge CEO packages, golden parachutes and retirement.

Didn't one of the oil companies CEO's recently receive a 75 million dollar retirement.

What a rip off of the public and the stockholders.

[Greyhound]

8. I think you might be talking about Lee Raymond and it was $400 million. n/t

[PA Democrat]

30. And those CEOs get those packages even if they have destroyed the company.

The grunts lose everything. The CEOs walk away with millions.

[Donnachaidh]

3. So what is even the point of joining a retirement fund run by the company?

WHY give THEM the use of your money when they contribute NOTHING?

Seems rather DUMB on their part. Or perhaps they think their employees are DUMB enough to continue to pay into these plans?

[TwixVoy]

4. Exactly

The article says more and more companies are automatically enrolling employees. I know at my company when you enroll your investment automatically goes to COMPANY STOCK unless you change it. I don't think many people do. With out the match the only point would be to put employees money in your own stock.

[A HERETIC I AM]

7. When you contribute to a 401(K), you are not giving the company "use of your money"

401(K) plan funds are, for the most part, invested in Mutual Funds that have nothing to do with the company you work for. Even if the plan offers company stock, there is no obligation for you to purchase it. There are situations where the company automatically purchases company stock for you, but this is done with the matching contribution or a portion thereof and you are under no obligation to retain those shares in the account.

The point of participating in a 401(K) plan is that they are an effective method for putting away a large sum for retirement.

You aren't letting them use the money. Thinking that is the case is DUMB.

[Greyhound]

9. Don't know where you work, but the quick survey of the people around me indicates

that we are all forced into a plan that's major holding is our companies stock. (WM, HP, & Stream, although we all do get a small matching "contribution" of 1% - 3%.

[A HERETIC I AM]

10. I would be VERY surprised if those were your only investment choices.

My company also purchases company stock with their contributions to my 401(K) as a default, but there is nothing stopping me from going to the website once a month and moving those dollars into something else, and unless I completely misunderstand the plan, I can request the company contributions be made into at the very least, a money market fund.

Problems arise with such plans when the participant (that's you) are not proactive with how the money is allocated. Many millions of Americans are not proactive and as a result, have no idea how they are really invested or just simply don't care enough to find out.

[Greyhound]

18. True in the same sense that, since we do get a choice between the two

candidates that the "people that matter" have decided to allow through, we have a representative republic. Waste Management is a good example, there are 3 or 4 choices, but there is a great deal of both subtle and direct pressure for employees to select the WM plan.

You may work for a decent company, but most of us do not.

[Common Sense Party]

23. Don't know where you work, but what you're describing isn't

typical of a 401(k) plan.

Are you saying that you are FORCED to contribute into a retirement plan, and the only choice of investments is your employer's stock?

[Hannah Bell]

12. If they're invested in the company's stock - yes, you are, in a sense.

[A HERETIC I AM]

14. In a sense?

Sure. In the very narrowest of senses, because as I am sure you are aware, if the shares purchased are common stock and not restricted in any way, then they are in the public domain. Unless the company sells you your shares directly, the money used to purchase the shares does not go to the company, but to the person or entity that you bought them from (or that the company purchased them from). It is possible that the company is making the market of their own shares, but this is, from what I understand, exceedingly rare. Even if they are their own market maker, there is a Transfer Agent involved, which is a completely separate third party.

If the company is closely held, then yes, they are the market maker because there is no other market. Two examples are Penske Truck Leasing and Publix Supermarkets. Both firms are closely held (not publicly traded) but offer company stock through their 401(K) plans. In cases such as this, the plan participant has no alternative but to redeem their shares with the firm. An exception would be if the closely held company went public, as was the case with United Parcel Service a few years ago. Then the employees who had company shares in their 401(K) accounts could sell them at market price. Since closely held shares are not priced via a bid/ask auction process, the share price is determined by the company's balance sheet. Even in cases such as Publix and Penske, the plan participants still have other investment choices available and are free to move those funds around.

If the company is publicly traded however, there is a market for the shares and any held in your 401(K) could have been, and most likely were purchased off of whatever exchange they are traded on.

It is inaccurate and misleading to categorically state that money in a 401(K) plan is held by the company. It isn't.

[Common Sense Party]

22. ERISA law precludes and prohibits the company from holding

on to participant's contributions.

[dsc]

5. I love their example

25 year old making 40k. I have a masters and 6 years experience and make about 45k. Also that extra 9% equates to 3600 or a mere 600 less than I pay for my car.

[MercutioATC]

13. Those jobs are out there.

An air traffic controller who starts at 21 and is assigned to a top-gun facility can be making 90k by the time they're 25.

...of course, they tell you up front (or at least they used to) that an ATC career will take 10-15 years off of your life and you will have permanent vision and hearing damage by the time you retire. It's also notoriously hard on relationships.

[lumberjack_jeff]

6. They used to have "top heavy" rules to encourage employer matches.

Not any more. I'm surprised any companies still match.

[marmar]

11. We dumped your pensions and offered you up this Ponzi scheme for retirement......

..... AND NOW WE'RE NOT MATCHING A MONOPOLY GAME BOARD DOLLAR OF IT!!!! :P


Silly workers, retirement is for CEOs.....You can all work at Wal-Mart when you're 75.

[doc03]

15. Here's one that will blow your mind, our employer offered to

match our 401K contribution by 50% up to 6%. That was if you put 6% in the company would chip in 3%. This will be hard to believe but our Union in their infinite wisdom turned it down. Their explanation was only members that put money in would get the benefit, they said it wouldn't be fair for the others that didn't participate. In other words if you put money away and tried to help yourself build a good retirement nest egg you where penalized, because your co-worker drank his up and didn't contribute to his 401K it wasn't fair to him. Explain that one?

on edit: The only explanation I can figure for that one is the union wanted to keep us dependant on the Union, fearing if we got to much money maybe we would decide we didn't need them anymore.

[Common Sense Party]

24. Exactly. I've seen that happen in a number of companies.

The unions want full-blown, traditional, defined-benefit pension plans or nothing.

While it would be nice to live in 1960, when pension plans were much more common and were actually funded, that's just not reality anymore.

[doc03]

32. You're right on, the Union was pushing for a new

defined-benefit pension plan in the next contract. We lost our old defined-benefit pension in 1985 when the company went bankrupt and that pension was dumped on the PBGC. When we came out of bankruptcy in 1990 we got a new defined-contribution pension and in addition to that they started a 401k and the company offered the match, that was when the Union turned it down. So in the next contract the company offered to improve our defined-contribution plan but the Union insisted on a defined-benifit and forced us out on the street for 10 1/2 months. We ended up (winning)? and got what we asked for. Sometimes your better off not getting what you asked for. So in our next contract in 2003 when the company went bankrupt again the Union agreed to dump that defined-benefit plan for a defined contribution plan again. Here's the kicker the Union then told us the contribution plan was better anyway that was nice of them since they put us out of work for 10 1/2 months because they didn't like it at the time. It turned out we would have been much better off with the contribution plan the company offered us way back in 1996. Here's an example for the first 32 years I got $40 a month for each year of service a total of $1280. Under the company's contribution plan in just the last 5 years I got $100 a month for each year of service for a total of $500. So when I retire I will get a check from the PBGC for the first one, another check from the company for second one unless they do what we think and dump it on the PBGC also. Then I will get another check from the new pension trust. What is scary though is if say GM and/or Ford for instance dumps their pension on the PBGC and it goes under.

[Common Sense Party]

25. Delete. Dupe.

Whoops.

[dems_rightnow]

28. Our Company had...

a 3% match they made to anyone, regardless of whether or not they participated. (Safe Harbor Non-Elective)

Eventually they realized that a significant number of people just didn't participate. They changed it to a 50% match up to 8% of salary of got pretty much instant 100% participation. Some people just need to be spurred into helping themselves.

[noamnety]

16. Actually, this part does sound more equitable

"* Contributing a flat percentage to every worker regardless of his or her contributions, to ensure that even employees who don't feel financially able to contribute still benefit."

Right now, the matching system is a regressive system, where those who are the poorest and can least afford retirement savings get less contributions from the company, and those who have the most excess income get a bonus from the company for being in that position.

A flat dollar amount would be most equitable, a flat percentage next, and the current system is the least.

(Not that I trust them to pay out an equal amount after any restructuring, all changes seem to screw the little people in the real world - but this proposal is better.)

[doc03]

17. From what I understand any funds your employer deposits in

your 401K can be taken out of it by your employer. I believe they can take the principle but the earnings are yours.

[AllentownJake]

20. No they can take the match only if you aren't within the vesting period

They can't take anything after the vesting period. Its normally 3 years.

[doc03]

21. Ok I'll take your word for it. I knew that they could take

it back but wasn't aware of the vesting period. It really doesn't affect me since our Union wouldn't let the company match our contributions.

[Common Sense Party]

26. Vesting periods vary quite a bit.

Some companies have a five or six year vesting schedule--if you leave after, say, 3 years, you might only be 40% vested, but after six years you're 100% vested.

Some companies have a three year "cliff" vesting. If you leave before 3 years, you don't get to take any employer dollars with you. After 3 years, you're 100% vested.

Some companies have "safe harbor" plans where you're 100% vested immediately on Day One.

[Gormy Cuss]

34. The inverted pyramid model is more equitable.

Higher employer matches to lower wage/salaried individuals were fairly common when 401Ks were new. I forget the exact language used, but the intent was to encourage participation across all salary tiers because eligible plans needed to demonstrate that this wasn't just a benefit for the executives. So an employee making 20K may be matched at 100% while a 75K employee may be matched at only 5%. I think that most companies dumped this form of encouragement in favor of automatic enrollment plans.

[noamnety]

35. That would be even better.

I strongly resent the corporate spin that matching percentages are equitable. 5% of the disposable income an employee making $100,000 a year can afford to contribute is not equitable with 5% of the disposable income an employee making $17,000 can afford to contribute.

[AllentownJake]

19. Ok I'm kind of a mini expert in this because I worked for a company that manages these for 5 years

Your employer is not required to match your contributions. However if they choose to they have to be equitable when matching i.e. Executives can't get a bigger % match than you. If an employer chooses to match your contribution they can require a vesting period. That period can be up to 3 years. During that period they can match you with company stock if they choose however once the vesting period is up you can move the investment into another fund if you choose. 401(k)s are required to have a balance of investment options that include mutual funds with different investment objectives.

If a company chooses to quit matching and you make under the ROTH IRA amounts your best bet is to quit your deposits in your 401(k) and do the ROTH IRA. You will be taxxed on your income normally however your investment will grow free of taxes so when you retire you will not pay any taxes on the money you take out. If you do this its best to set it up with your bank or investment firm so a percentage is automatically direct deposited when you

The positives of a 401 (k) is the income isn't taxxed when you contribute and neither is the employer's contribution.

Just so where clear too once your vested in the plan any money they contribute is yours so after 3 years any new money they give you, you can move immediately to any investment you choose and if you leave the company you take it with you. Also if you already meet the vesting period if you start contributing today the money is yours.

Hope that helps

[Common Sense Party]

27. I mostly agree, just a couple of quibbles:

The vesting period can actually be up to 6 years (used to be 7).

I love Roths, but it isn't automatically the best choice for everyone. It depends a great deal on what your current tax bracket is, how long until you retire, and what you GUESS your tax bracket might be when you're retired. It always makes sense to use an online Roth calculator to see if it one option is better for you than the other.

Some people need the tax deduction now, and so a traditional 401 might make more sense for them. Also, the convenience of payroll deduction is a huge factor as well--if you're not very disciplined, you might neglect to fund your Roth IRA. Also, if you're really trying to max out your retirement savings, you can put much more in a 401(k)--$15,500--than you can put in a Roth IRA--$5000.

[AllentownJake]

29. Agree Best Bet is to talk to a Financial Advisor

However, if a company isn't matching and your contributing under the limits...a 401(k) is pretty much the same as an IRA.

[MiniMe]

31. Its times like these that makes it nice to work for a non-profit

The non-profit I work for contributes 3% of your salary to a 401k fund. You don't even have to participate.

[DU GrovelBot]

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[Ex Lurker]

36. it's possible it would

work out okay if the money went into reducing plan expenses, boosting the medical plan, or whatever. But where it's really going is back into the pockets of upper management. Watch and see.

[romulusnr]

37. they're wrong

Financial bloggers are already advising people to get IRAs and not depend on 401(k)s which actually provide less flexibility. The article says that if companies drop matching, participation won't suffer, but that's not necessarily going to be true for much longer if even now.

I based my level of contribution to my previous 401(k) entirely on the rate at which the company was going to match.

Then again, my current company does no matching even after over 6 years in business and over 100 employees. And I've worked places that had no 401(k) at all.

People are encouraged to enter 401(k)s because of the matching. But also because it's easy: the employer does the work of finding the fund manager and setting it up and all the emp has to do is say how much they want to put in each month and optionally pick a few funds to go into. The emp doesn't have to make a trip to the bank etc.

However how long will that convenience factor hold as tightening economies push them to look into flexible investment options? Or to go the extra mile and have someone choose the best way to arrange your fund contributions? (My old 401(k) is losing money, grrr, probably time to roll...)