401k Archives

What Should You Do if Your Company is Cutting Your 401(k) Match? By: Joe Carreno

September 22, 2021 /by joe carreno

For the first time, unemployment has reached its peak after the incident of the Wall Street crash in 1929. Up till now, millions of people have lost their jobs, as employers claim that they do not have enough money to pay their employees. Meanwhile, only the positions of the people are not getting affected by the COVID-19. Due to the termination of businesses and the lockdown, employers are also unable to pay for their due part in the 401(k) plan of their employees.

As millions of people have become unemployed, their 401(k) plan has automatically gone down. But, those who are at their jobs also do not know how long they will keep on serving at that position—even being the employee under a specific employer. Still, thousands of people have had their 401(k) plan hit.

In reality, the termination of the 401(k) plan is a big issue, as this is one of the most significant sources of income that avoids employees’ threats of outliving money in their retired life. But now, those who have got their 401(k) plan hit by this pandemic are truly vulnerable to the stressed circumstances of the economy.

Moreover, those employees whose retirement is near or who are thinking of taking early retirement will be the weakest people who will be adversely affected by the interruptions in their 401(k) plan.

So, if any one of you is worried due to these prevailing crises, they must not make themselves suffer, as we here have a plan that can reduce the intensity of this damage. Abiding by the following steps, you will have ample relief regarding your 401(k) plan.

But, before we go into the details of those, we would like to add some words about 401(k) plan.

401(k) Plan:

Most of the employees rely on their savings after retirement, and to avoid any financial uncertainty, employees need to tap into some savings plan that could provide them with the accumulated money at the end of their service. So, there are different saving plans to serve employees in this regard.

Thrift Saving Plans and 401(k) plans are the leading plans that provide most employees with the money to spend their retired life respectably. The only difference between these plans is that the Thrift Savings Plan (TSP) is adaptable for federal employees only, and the employees can adopt the 401(k) plan in the private sector.

In reality, a 401(k) plan is a sponsored plan offered by the employer of the employee. According to the set terms and conditions of the policy, a considerable part of the deposited money comes from the employer. Moreover, this installment is either deposited monthly or yearly, according to the conditions of the plan.

Apart from this, a little part of that deposited money goes from the employee, and this part is cut from the salary of every month. So, this is how a small amount is reduced from the wages of employees every month, and the employer pays the more significant part, and in the end, this money is given back to the employees as their retirement income.

But, according to the prevailing situation, employers are unable to pay that more prominent part of the amount that is to be deposited, and in this way, the 401(k) plans of employees have been affected severely.

However, according to the situation, it is tough for employers to maintain the payments for 401(k) plans of their employees. Don’t worry, we have a plan that will help you out in this harsh environment. Following the given instructions, you will match your 401(k) plan payments, and you can conveniently avoid derailing your retirement savings.

Increase contributions from your end

As employers are less willing to contribute to the 401(k) plans of their employees, the only way out is to get your savings plan terminated. But, if you do so, you will have nothing in your hand to spend your retired life.

So, the best option to cope with this problem is to contribute maximum in your 401(k) plan saving plan.

For this purpose, you need to reach out to the HR department of your organization that maintains the record of your saving plan. From there, determine how much part was being contributed by your employer in your saving plan and try to provide that amount on your own.

On the other hand, you may also know about the contributions paid by your employer online from your 401(k) plan portal. There remains a summary of your plan, and you may check that amount from there.

Now, you have to bear the burden of full payment of your savings account, and for this purpose, you have to adjust money from the income you have in your hand. At this point, you will have a question about how you will manage to pay that amount on your own. Here are some practices that could facilitate you in paying the full amount of your savings plan.

#1. Use Coupons While Buying Essential Items

While roaming in the market, you might have seen products along with coupons, and these things are highly recommended in these circumstances because you get something free with the original product. So, by doing this, you can have something extra along with the main thing, and that extra thing will surely reduce your shopping budget, as you will not buy that thing.

#2. Cut Your Discretionary Expenses

If you are habitual of visiting the Appalachians every season, and you watch movies every week, you must reconsider your priorities.

These are discretionary expenses, and even without these expenses, you may comfortably live your life. So, abandoning these expenses, you will save considerable money that you can use for paying the installment of your 401(k) plan’s savings account.

So, these are the steps that you can follow to meet the amount paid by your employer. But, still, if you cannot meet that amount, put the money forward that you accumulated and let your plan go with that amount. But, leaving the plan will never be a good option.

Consider Changing the Savings Plan

Of course, the employer puts a great amount in your 401(k) plan, and if the employer takes a step back, there is real trouble for the employee. So, in the first step, we concluded that you could meet that amount by sacrificing your non-necessary expenses. But, if you still cannot match your 401(k) plan, you might think about moving your savings plan.

You can move your savings plan from a 401(k) plan to an Individual Retirement Account (IRA). Being a 401(k) plan holder, you can conveniently shift your savings plan.

Therefore, if you cannot meet the match of the 401(k) plan, you can invest that money in the IRA savings plan. Typically, you move your accumulated cash from your 401(k) plan’s account to your newly opened IRA account. Now, it is up to you how much of an investment you want to make in the IRA account based on your earnings.

This savings plan through an IRA will allow you to invest your money in different kinds of stocks, and the interest that you will earn through that investment will keep on accumulating in your IRA savings account. At the end of the term of your service, you will get this collected money as money for your retirement.

So, changing the savings plan from a 401(K) plan to an IRA savings plan seems to be the best solution; otherwise, you might lose your retirement money. And of course, it will not be possible for any of the people to live their retired life without having their retirement payments.

Redraft Your Retirement Plan

So, if you do not match your 401(k) plan, you may change your savings plan. Moving to the IRA will be a good option, as we discussed above. But, the need of the hour is that everyone, either having a 401(k) plan or IRA savings plan, must check the status of their savings plans, as this status will provide them with the bright idea that how much money they will be having at the end of their retirement to spend in their retired life.

Therefore, for this purpose, make a list of expenses that you make at your home every month and estimate the money that you will receive at the end of your service. The estimated retirement money can be seen from the portal whose savings plan you have opted for. So, now you have both estimated expenses and the estimated amount of retirement. And do not forget adding 3% of inflation, which is most likely to rise every year.

Now, compare both of these numbers, and see whether your retirement amount is enough for your estimated expenses or not. If it is sitting right with the expenses, that is good, but if this is not the case, you must take the pain of this thing, and consider how you can eliminate this gap between your expenses and income.

In this situation, you need to explore other options that could provide you with a solution to this problem. For example, if you do not have enough money out of your IRA saving plan, you can go back to your 401(k) plan once your organization restarts that policy. On the other hand, you may also move to the annuities.

However, in short, you have to keep yourself to the safe end by calculating the estimated income and expenses.

Final Words:

In the meantime, when the pandemic of COVID-19 is creating chaos all over the world, a vast number of small businesses have shut down forever, and unemployment is also at its peak. Moreover, those who are at their jobs are also uncertain about the security of their career. Meanwhile, the saving plans of the employers got a tight blow due to the abandonment of businesses due to the lockdowns in the USA.

So, the problem becomes even worse when employees face the situation of termination of their 401(k) savings plan. This is because employers are claiming they do not have enough money to put in the savings plans of their employees. Therefore, this service has been temporarily cut from employers. Now, the only option appears to contribute to your plan on your own; otherwise, you might ruin your investment savings.

Congressional Watchdog Finds That Almost 40% of Participants Don’t Understand 401(k) Fees. By: Joe Carreno

September 20, 2021 /by joe carreno

On Thursday, August 26, 2021, the Government Accountability Office (GAO), a congressional watchdog, released a report stating that almost 40% of 401(k) participants do not fully understand the scheme’s fees. For the past ten years, the US Department of Labor has requested sponsors to educate participants about the fees associated with their accounts. Yet, a significant number of participants do not completely understand the fees.

Democrat lawmakers, Sen. Patty Murray of Washington and Rep. Bobby Scott of Virginia had requested the report. Sen. Murray chairs the US Senate Health, Education, Labor, and Pensions Committee, while Rep. Scott chairs the House Committee on Education and Labor.

Scott said the findings of GAO should serve as a wake-up call for the Labor Department and 401(k) participants. He added that the report indicates that the Labor Department must make it compulsory for plan sponsors to give participants full fee disclosures. He added that the disclosures should be easy to understand and that participants should know how the fees affect their contributions.

The report stated that about 87 million employees have 401(k) plans, making the accounts one of the most popular ways people save for retirement. Around 71% of workers in the private sector, and local and state governments received their retirement benefits in March 2020. Of this percentage, 55% had 401(k) accounts.

401(k) participants must understand the effects of administrative and investing fees on their contributions as participants who do not understand them may be adversely affected.

Murray described retirement savings as long-term investments. As such, the Democrat said participants need “clear, complete information.” He added that the report shows that 401(k) participants do not have the needed information to make informed choices about their long-term retirement investments.

What Participants Do Not Understand about 401(k) Fees

For its findings, GAO surveyed 1,000 401(k) participants. The survey included questions that were meant to test participants’ knowledge of the fees. The government watchdog found that many respondents know about the existence of the fees, but they do not completely understand how the fees affect them. Other respondents do not know about the existence of the fees at all. The members of the latter category made up about 64% of respondents. These respondents didn’t know if they were paying any fees or even if the fees even existed.

65% of the participants didn’t know how much additional fees they paid on the 401(k) accounts. The government watchdog found that females and savers with less than $1,000 made up a majority of this group. It also discovered that education was a factor. More people with high school diplomas or less also said they do not understand the fees.

“Americans are already struggling to stretch their paychecks and save for retirement,” Chairman Scott stated. “Making fee disclosures more accessible is a common-sense change that will help more people retire with dignity.”

Long-Term Effects on Participants

Employer-sponsored 401(k) plans and any other investment account come with costs. Participants and their employers pay the fees. Some they pay independently and some together. However, participants have to be aware of these fees, or their savings could be adversely affected. In 2006, GAO submitted a report that shows how an increase of 1% could reduce retirement savings by tens of thousands of dollars.

For example, a worker who contributes $20,000 to a 401(k) plan with a 7% return rate and 0.5% fee will have $70,500 after 20 years. If the fee is increased to 1.5%, the worker will have $58,000 at retirement. The 1% fee increase caused a 17% reduction in the worker’s earnings.

GAO Recommendations

GAO made five recommendations to the Labor Department. These recommendations will enhance contributors’ knowledge of the long-term effects of the fees. The recommendations are:

– The department should enforce the use of a consistent term for asset-based investment fees.
– It should stipulate the fees in quarterly disclosures.
– It should educate participants on the long-term effects of the fees.
– It should add fee benchmarks for in-plan investment options.
– It should add ticker information for investment options in disclosures.

The department has responded to the committee’s recommendations. It stated that it is unable to enforce the recommendations at the moment but would consider adopting them in the future. The committee, in turn, urged the department to do whatever it can to help the Americans who are saving money.

Uber Offering Retirement Benefits Options to All Employees

September 7, 2016 /by Admin

Uber, a San Francisco-based ride-hailing company has recently announced that it will offer retirement benefits saving options to its employees. The drivers can create a benefits account via the app only. The company also mentioned that as the employees are considered as independent contractors, it is unable to pay them a 401(k) like plan. The company also clarified that it won’t be matching the employee contribution to the retirement savings account.

Uber’s Initiative for Retirement Benefits Savings

The popular company has launched this initiative in conjunction with an automated investor service known as Betterment. Currently Uber is running a pilot program as per which the drivers belonging to specified markets are allowed to start retirement accounts by using the ride-hailing app. They can begin an IRA or Roth IRA account with the help of a robo-advisor. They are not required to keep a minimum account balance.

A major benefit of this initiative is that the drivers won’t have to pay any money to use this service for the first year. After that, they are expected to pay 0.25 percent of the average account balance for any given year.

The Benefit

Uber Technologies Inc. made a statement regarding this new initiative. It said that this new initiative would benefit tens of thousands of drivers, particularly those who are in Seattle, New Jersey, Boston, and Chicago. The drivers of New York would soon be able to try this new option too as Uber is working with New York-based Betterment to roll out the initiative there. The company also plans to roll out the program nationwide but it has not shared when the roll-out would be complete.

Non-Monetary Deal

Arielle Sobel who was representing Betterment recently shared that her company and Uber would contribute non-monetary resources to this new initiative and that while forming this unusual partnership, no money was exchanged.

Uber’s Stand

Uber shared that it doesn’t offer a 401(k) program to the drivers as they are not considered an employee. They are independent contractors so they cannot expect any benefits like retirement saving assistance or some paid time off. The company also made it very clear that it will not be making any contributions to the retirement benefits accounts set up by the drivers. It has just launched this program to ensure that the drivers take control of their own financial future.

Saving Towards 401(k) Retirement Plans Stresses Americans

August 18, 2016 /by Admin

Stressing about 401(k) retirement plans is very common among Americans according to a new survey. It overrides other factors such as job security. The top retirement stress of Millennials is a bit different. Experts believe that people stress more about retirement because it’s an unknown element of their lives and they need help to figure it all out. Some employers are helping the employees to get trained on financial management but a bulk of them is not doing so.

The Survey Highlighting 401(k) Retirement Plans Stress

The survey that highlighted the fact about Americans being stressed over the 401(k) retirement plans was conducted by Schwab Retirement Plan Services. The aim of the survey was to check the pulse of the 401(k) plans at a national level. It found out that 40 percent of the Americans who are the participants of the 401(k) are stressed about saving enough for enjoying a comfortable retirement.

This stress surpasses other financial stresses of an average American such as 24 percent people are worried about job security, 21 percent are worried about paying the credit card debts and 20 percent are worried about keeping up with the monthly expenses.

The retirement related worries of 24 percent of Millennials is the worry related to paying off the student loans.

Expert Opinion

The Senior Vice President of the 401(k) business of Charles Schwab, Catherine Golladay stated that there are some other factors that influence the retirement saving stress. She named uncertainty, fear and market volatility among these factors. She believes that when people have to pay a credit card loan, they know that amount but when they think of retirement, they have no idea how much money would be enough.

These people need help in figuring out how much they need to save, when they can afford to retire, how much tax expenses they would need to bear in retirement and what will be their core expenses in retirement.

Employer’s Assistance

It is clear that the employers need to do something about the 401(k) retirement plans stress situation. They need to educate employees on how to prepare for retirement in the best manner by offering financial advice and training from time to time. They also need to automatically enroll all the employees in managed accounts because there they get professional advice for an annual fee. Unfortunately, only a few employers have taken these steps and a lot of them are still lagging behind.

Women have Bigger Retirement Benefits Challenges: Study

July 11, 2016 /by Admin

A recent white paper has revealed that women are very poorly prepared for retirement. The reason is the higher number of challenges faced by women. Many women work only part time and some are not even offered a retirement plan. The women who are offered a retirement benefits plan are often saving less money in the plan than they should for a secure retirement.

Why Women Don’t Have Access to a Retirement Benefits Plan

The white paper was released by a leading Washington-D.C.-based popular advocacy organization for America’s financial services industry named Financial Services Roundtable. The white paper revealed that about 27 percent women work part time because they need to take care of the kids or any other family members. Part-time workers are often not offered a retirement benefits plan. Moreover, the earnings of part-time workers are so low that even if they are offered a retirement plan, they can hardly contribute to it.

The Workplace Earning Differences

The white paper has also highlighted the fact that women consist of 47 percent of the labor force in America. Women also have nearly equal education to men. About 29.6 percent women hold a bachelor’s degree and this percentage is 30.4 percent for men. But still, women’s weekly earnings for salaries and full-time wages are just 81 percent of what men make.

The Bad News

About half of the millennials who were surveyed accepted that they don’t even have a retirement investment account while the fact is that the millennials need more money saved towards the retirement as compared to baby boomers as the cost of living and healthcare expenses are constantly rising.

Women Need more Retirement benefits than Men

The white paper also shared the fact that women need more money stashed for the retirement than the men because they have a longer average lifespan. The average lifespan for men is 84 years while its 87 years for women. It is also a strong possibility that women will need to spend more money over time towards their health care.

The Participation

The white paper has also found out that women who are saving towards a retirement benefits plan are not doing enough. About 62 percent of women were offered a 401(k) or a similar plan. Just 76 percent participated in the plans and the rate of saving they chose stands at 7 percent of their salary.

Court Decides Retirement benefits are not a part of Workers’ Compensation

June 23, 2016 /by Admin

Getting injured on a job can be a tough ordeal for any person. It is a sad fact that the injured person often faces financial difficulty after such incidents. Hence, the employer needs to pay a hefty sum to ensure financial safety of an injured employee. The Supreme Court of Iowa recently cleared the air on whether the retirement benefits are a part of workers compensation or not. It said that they are not a part of workers compensation as they are just a fringe benefit that is not usually spent by an employee on a weekly basis.

Why are Retirement benefits not a part of Workers’ Compensation?

The decision that says that the retirement benefits are not a part of workers’ compensation was made by a district court. However, the Supreme Court of Iowa just recently agreed to it. The reason behind the ruling is that the court believes that retirement benefits are just a part of fringe benefits. They were not a part of his weekly earnings. It is pertinent to add here that it is the very first time the Supreme Court of Iowa has taken any stand on the matter.

The Case

The case that highlighted the need for making a decision on whether the retirement benefits are a part of workers’ compensation or not has also gained some popularity. The case was related to a person named David Evenson who had injured his elbow when he was on the job. He was working for Winnebago Industries when he got injured. The whole incident happened in May of the year 2010.

When the case was in court, he stated that the company contributions to his 401-K plan must be considered when the amount of workers’ compensation payments was to be set. It can be seen that Evenson clearly wanted better workers’ compensation payments like almost all the employees who get injured on the job and he wished for a financially secure future.

The Ruling

After the appeal made by Evenson, the district court didn’t side with him. The court upheld an arbiter’s ruling which stated that the 401-K payments or retirement benefits were just a fringe benefit. The ruling further added that the money is not a part of weekly spendable earnings of the employee and hence they should not be considered when the workers’ compensation payments are to be decided.

About 50 Percent Decline in Small Businesses offering Retirement Benefits

June 8, 2016 /by Admin

A recent report has found out that most small business owners are shying away from offering retirement benefits to their employees. The report also highlighted that the small business owners might not be hiring much this year and the business sentiment is not too optimistic.

Dropped Retirement Benefits

Image Credits

The Capital One’s Spark Business Barometer shared that the percentage of small businesses that offer retirement plans has dropped by about 50 percent. The report also pointed out that only 13 percent of small business owners offer a 401 (k) plan to the staff members. In the final quarter of 2014, about one in four small businesses offered a retirement plan to the employees. About 30% of the businesses that have employed 20 to 49 people are offering a 401 (k) plan and just 7% of businesses having less than 5 employees are offering this plan.

The Reason

When asked about the reasons for the decline, the small business owners told the researchers that they were not offering a retirement benefits plan because they could not afford the high costs associated with them. Some business owners also confessed that they were too small to offer such plans to employees. This data was shared by the President of ShareBuilder 401k, Stuart Robertson.

New Hires

The recruitment plans of the small businesses are not so great, revealed the report. Just 26 percent of small business owners stated that they would hire new staff in the next 6 months time. Out of these 26 percent, nearly half admitted that they cannot afford to hire full-time employees. The reasons behind the low hiring are the poor retail conditions and political uncertainty.

Overcoming the Misconceptions

ShareBuilder 401k now plans to use the report to enlighten small business owners that 401 (k) plans can be very affordable, straightforward and accessible. Any owner of any business no matter how small the business is can establish a plan without even needing to make matching contributions, said Robertson.

Poor Business Conditions

The report also found that the business optimism was also low. Only 34% of business owners confessed that the business conditions were good in this year until now. About one in five companies that were part of the survey have admitted that the business had been poor this year. It can be assumed that when the business sentiment gets better, small business owners might be more inclined to offer retirement benefits.

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