David Kirkpatrick

March 16, 2010

Happy birthday, 401(k)

Filed under: Business, Politics — Tags: , , , — David Kirkpatrick @ 3:44 pm

The retirement savings vehicle is now thirty. (Well, technically thirty since the start of the year.)

From the link:

That’s the case with the U.S.’s main corporate pension plan, the 401(k). The Revenue Act of 1978 contained a provision that become Section 401(k) of the Internal Revenue Code and it went into effect on Jan. 1, 1980. Subsequent regulations issued by the federal government in 1981 gave benefit specialists the guidance they needed to set up the pension plans. The 401(k) has since evolved into the largest private-sector employer-sponsored retirement plan in the U.S.

February 16, 2010

January 25, 2010

White House throwing the middle class a lifeline

Here’s some of the options on the table:

The initiatives were developed by the White House Task Force on Middle Class Families, led by Vice President Joe Biden. The proposals would:

* Require companies that do not offer retirement plans to enroll their employees in direct-deposit retirement accounts unless the workers opt out.

* Increase the “Savers Credit,” a tax credit for retirement savings, for families making up to $85,000.

* Change some of the rules for 401(k) employer-sponsored retirement savings accounts to make them more transparent.

* Increase the child tax credit rate to 35 percent of qualifying expenses from the current 20 percent for families making under $85,000 a year. Families making up to $115,000 would be eligible for some increase in the tax credit.

* Increase child care funding by $1.6 billion in 2011 to serve an additional 235,000 children.

* Boost government spending by $102.5 million for programs aimed at helping families who provide home care for an aging relative.

* Ease the burden for student loans by limiting a borrower’s payments to 10 percent of his or her income above a basic living allowance.

September 30, 2009

August 27, 2009

401(k) cap may drop next year

Filed under: Business, Politics — Tags: , , , , — David Kirkpatrick @ 4:27 pm

Only by $500, but it sure seems counterproductive to long-term fiscal sanity for individuals. I’m guessing Congress will pass something to prevent this forcing of the IRS’s hand on the issue.

From the link:

Low inflation has made food and gas more affordable during the recession, but there’s a downside: Social Security beneficiaries probably won’t get a raise next year, and the IRS may reduce the amount workers can contribute to their 401(k) plans.The IRS will announce 2010 contribution limits for 401(k) plans in October, based on a formula tied to the inflation rate in the third quarter vs. the year-ago quarter. For 2009, most workers can contribute up to $16,500 to their 401(k) plans, plus an additional $5,500 if they’re 50 or older. Unless inflation picks up in August and September, the IRS could be forced to reduce the cutoff to $16,000 in 2010, according to an analysis by Mercer, a human resources consultant. The threshold for catch-up contributions could be reduced to $5,000. This would mark the first time the IRS has reduced 401(k) contribution limits.

August 5, 2009

401(k) fees and small business

Fees are the silent assassins in retirement plans and often small business pays a premium with 401(k) fees. The Wall Street Journal offers a solid overview on the topic.

From the link:

But small-business 401(k) savers also labor under an additional burden: They pay substantially higher retirement-plan fees on average, which reduces their investment returns. Moreover, many small-business workers and employers are unaware of the magnitude of those charges.

That could be changing: Momentum is building in Congress to require expanded 401(k) disclosures that could be of particular benefit to small-business owners and their employees.

Under legislation approved by the House Education and Labor Committee in June, employees in 401(k) plans would get a more specific breakdown about how much they pay in fees on their quarterly statements. Other changes could assist employers when they are choosing among retirement-plan providers.

The bill would require 401(k) plan providers or administrators to thoroughly disclose, before a contract is signed, the investment-management, administrative, transaction and various other fees that employers and employees would pay in estimated total dollar amounts. The legislation would also require providers to reveal any financial relationships they have with investment advisers and others who market the plans to business owners.

Many large providers of 401(k)s for small businesses don’t give their customers a detailed breakdown of the estimated annual costs and where the fees go, making it difficult for employers to comparison shop. In some cases, the plan providers give a total dollar amount or the expense ratios of various investments in the plan, but not a complete breakdown of the various fees, such as the commissions brokers receive.

January 19, 2009

IRA and 401(k) advice from the Department of Labor

Filed under: Business, Politics — Tags: , , , — David Kirkpatrick @ 4:21 pm

Here’s a press release that will come in handy for anyone making moves with retirement funds.

The release:

U.S. Labor Department finalizes rule on investment advice for 401(k) plans and IRAs
PR Newswire via NewsEdge :

WASHINGTON, Jan. 16 /PRNewswire-USNewswire/ — The U.S. Department of Labor today announced publication of a final rule to make investment advice more accessible for millions of Americans in 401(k) type plans and individual retirement accounts (IRAs). The final rule will be published in the Jan. 21, 2009, edition of the Federal Register. The rule includes a regulation that implements the new statutory exemption for investment advice added to the Employee Retirement Income Security Act (ERISA) by the Pension Protection Act (PPA) and a related class exemption.

“Access to professional investment advice is particularly important now for workers as they manage their 401(k) plans and IRAs in changing and volatile financial markets,” said Secretary of Labor Elaine L. Chao.

The final rule provides general guidance on the exemption’s requirements, including computer model certification and disclosures by fiduciaries. The regulation also includes a model form to assist advisers in satisfying the exemption’s fee disclosure requirement. In addition, the final rule includes a class exemption expanding the availability of investment advice.

The PPA amended ERISA by adding a new prohibited transaction exemption that allows greater flexibility for participants of 401(k) plans and IRAs to obtain investment advice. One of the ways in which investment advice may be given under the exemption is through the use of a computer model certified as unbiased. The other way is through an adviser compensated on a “level-fee” basis. Several other requirements also must be satisfied, including disclosure of fees the adviser is to receive.

“Millions of American workers are responsible for managing their 401(k) and IRA accounts. The department took extraordinary steps to engage a broad spectrum of participants, employers, plan fiduciaries and others throughout the rulemaking process,” said Bradford P. Campbell, assistant secretary of the Labor Department’s Employee Benefits Security Administration. “The final rule expands access to investment advice without compromising the critical protections for plan participants and beneficiaries.”

The department published a Request for Information in December 2006, published a proposed regulation in August 2008 and held a public hearing on the proposals on Oct. 21, 2008.

U.S. Department of Labor releases are accessible on the Internet at www.dol.gov. The Labor Department is committed to providing America’s employers and employees with easy access to understandable information on how to comply with its laws and regulations. For more information, please visit www.dol.gov/compliance.

SOURCE U.S. Department of Labor

January 6, 2009

10 lights in dark economic times

Filed under: Business — Tags: , , , , , — David Kirkpatrick @ 2:22 pm

It’s list day! Not really, but I am doing two lists posts in a row. Here’s ten things that are good news, as far as that goes, to look forward to during the financial crisis.

From the link, number one — and a great point:

The Savings Rate Should Increase
The slowdown in consumer spending is actually a good thing. While often decried as an accelerator of the downturn — which it surely is — the pullback in consumer spending will benefit the economy in the long term. Consumers have been on a shopping spree for two decades, and household savings have suffered. In 2007, the household savings rate was 0.6 percent. In some recent quarters, the rate turned negative, indicating that people borrowed more than they saved. As a result, many families have very little cushion to protect themselves from the vagaries of life. And, even disregarding the recent damage wrought on 401(k)s, a staggering number of people have not put away enough for retirement. At the same time, their ability to invest their savings in U.S. businesses by buying bonds and stocks has dwindled. Instead, U.S. business growth has become highly dependent on foreign investors, whose willingness to send funds to these shores could fade at any time.

“Consumer spending needs to slow down,” says Matthew Slaughter, professor of international economics at the Tuck School of Business at Dartmouth. “It’s a really important long-run structural issue for the financial health of families and the economy. More savings means companies can undertake more investment to drive faster economic growth.”

December 23, 2008

Happy holidays, your retirement plan is now gutted

God bless us everyone.

From the link:

Companies eager to conserve cash are trimming their contributions to their workers’ 401(k) retirement plans, putting a new strain on America’s tattered safety net at the very moment when many workers are watching their accounts plummet along with the stock market.

When the FedEx Corporation slimmed down its pension plan last year, it softened the blow by offering workers enriched 401(k) contributions to make up for the pension benefits some would lose. But last week, with Americans sending fewer parcels and FedEx’s revenue growth at a standstill, the company said it would suspend all of its contributions for at least a year.


”We will have to work more years and retire with less money,” said Lee Higham, a 44-year-old senior aircraft mechanic at FedEx, who has worked there for 20 years. ”That’s what we are up against now.”

FedEx is not the only one. Eastman Kodak, Motorola, General Motors and Resorts International are among the companies that have cut matching contributions to their plans since September, when the credit markets froze and companies began looking urgently for cash. More companies are expected to suspend their matching contributions in 2009, according to Watson Wyatt, a benefits consulting firm.

For workers, the loss of a matching contribution heightens the pain of a retirement account balance shriveling away because of the plunging stocks markets.

December 18, 2008

Personal finance dos and don’ts

Filed under: Business — Tags: , , , , — David Kirkpatrick @ 1:56 pm

The financial crisis is in full swing, businesses are quaking and the Fed seems like it’s up the old, proverbial creek without a paddle — and the metaphor might be better served by going with stuck in the middle of a choppy ocean without a paddle. It’s that bad.

I’ve heard everything from we’ll know nothing, that’s know not that things will get better, before June, or so. The very latest word on the street is 2009 is a lost year. Just write it off right now and coast hugging a blanket close to your neck.

Of course that’s impossible, so what’s a prudent person to do when looking at personal finances and financial decisions?

Here’s a good list of 20 dos and don’ts for personal finance from Business Week.

 Two very good ones from the link:

6. Don’t stop contributing to 401(k) and other retirement accounts.

Says Sidney Blum of GreenLight Fee Only Advisors in Evanston, Ill.: “Everyone loves to invest in their 401(k) when the markets are flying high, but they should keep putting money in while the markets are down.” He adds: “More money is made at the bottom of a market than at the top.”

Even more pessimistic planners say you should be taking advantage of any match your employer offers for retirement fund contributions.

7. Do live below your means. Save.

Investing for the future is only possible if you have some money left over at the end of each month to sock away. View this BusinessWeek slide show for 25 ways to save more each month.

July 29, 2008

401(K) debit card — a bad, bad idea

Filed under: Business, Politics — Tags: , , , — David Kirkpatrick @ 1:20 pm

This article is the first I’ve ever heard of the concept of a 401(K) debit card, but man the idea is stupid. The penalties are so high for tapping into 401(K) money early, that “nuclear option” should be reserved for financial relief of the last resort.

I can’t believe Congress is even debating this idea. Guess the bank lobby is flexing some muscle. Banking has such a great track record over the last fifteen years or so for looking out for the best interests of its customers …

From the link:

It’s bad enough that 40% of workers in their 20s and 30s cash out their 401(k)s when they switch jobs, even though taxes and penalties decimate the balances to almost half, according to a CMI survey of 1,200 people in January commissioned by Fidelity.

Worse, even, a small percentage of 401(k) participants take out loans or hardship withdrawals from their retirement savings, which average only $122,000 in the first place, with a national median balance of $66,000, data from the Investment Company Institute and the Employee Benefit Research Institute shows.

Now Congress is debating the pros and cons of supplying people with 401(k) debit cards.

Are they serious? Putting this piece of plastic in investors’ hands would be akin to telling them to live for today and go out and spend whatever money they’ve saved for retirement.