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"Greetings, workers, there's no need to fear: Super 401(k) is here!!"
Old 12-03-2007, 02:24 PM   #1
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"Greetings, workers, there's no need to fear: Super 401(k) is here!!"

I don't get it.

Redrawing the Route to Retirement

Business Week is trying to claim that "Super 401(k)s", essentially target retirement funds in a 401(k) wrapper, are the newest initiatives for companies to attract & retain workers.

The article's featured company, Devon Energy, is portrayed as being particularly concerned about their aging workforce. The idea seems to be to scrap the pension plan but to entice youngsters to sign an employment contract for their super-sized 401(k) benefits, in which they'll automatically be enrolled. Of course it also drops Devon's future pension liabilities and maybe even reduces the cost of their old 401(k) management.

What I don't understand is the apparent concern about being able to find workers. If Boomers are really spending it faster than they're earning it feeling bored & unfulfilled by the concept of retirement, then why in the world would a company like Devon have to worry about its workforce? Surely geezers will stay chained to their cubicles without the company having to improve their retirement benefits! And if Gen Y is so [insert one here: materialistic, idealistic, clueless] as to have no plans for retirement, then why go to the effort of coming up with a better 401(k)? Hypothetically their employment decisions would be influenced by the quality of the doughnuts served at the morning meetings or by the foosball tables in the break rooms, not by far-off retirement concerns.

Perhaps people are doing better with their own investments than the media would have us believe. Maybe companies are increasingly concerned about retirement litigation. Or else Fidelity has a really really good 401(k) marketing division.

No one seems to be selling Super 401(k)s as a power tool for early retirement...
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Old 12-03-2007, 02:43 PM   #2
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Well, they are still limited by law to the maximum 401k/profit sharing contribution of of $45,000, adding both employee and employer contributions.

My firm supered up its 401k by choosing a safe harbor plan which puts a certain amount in employee's accounts, even if the employee contributes nothing. For staff employees, the percentage contribution ranges from 3% to 14.5%, depending on age and length of service. This enabled us to contribute more money pretax to shareholder retirement accounts, so that nearly every shareholder ended up at the maximum allowed by law.

Motivations? More pretax money into the owner's retirement plans. Helping staff and newer employees to plan for the future with an easy to understand retirement system. Getting people to save for retirement so that they could retire already.

Some other thoughts that don't pertain to my prior workplace. I think that there is a desire to have older employees retire. They are expensive. They may be perceived as less productive. so having employees in a position to retire is a good thing. A company may want younger cheaper workers. Odds are the younger, cheaper workers are getting the smaller percentage contributions, with them increasing over time.

Devon is taking a risk by assuming so much management over investment decisions. By taking on this fiduciary duty, it risks claims for breach of that duty. But, it already has all sorts of liabilities with its pension and odds are it would be well served by converting as many people it can to a souped up 401k.
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Legal Liability or Financial Liability??
Old 12-03-2007, 03:40 PM   #3
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Legal Liability or Financial Liability??

[quote=Nords;584157]I don't get it.

What I don't understand is the apparent concern about being able to find workers. quote]

I don't think this has anything to do with Boomers or Gen-Xers -- it's more about reducing liabilities on the balance sheet.

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Old 12-03-2007, 04:35 PM   #4
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[quote=Gotadimple;584189]
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I don't get it.

What I don't understand is the apparent concern about being able to find workers. quote]

I don't think this has anything to do with Boomers or Gen-Xers -- it's more about reducing liabilities on the balance sheet.

-- Rita
And pensions stick out like sore thumbs on a yearly financial statement. I for one see no problem, I wish more people had safe harbor 401K's. It works really well where a few people make a LOT more than the others.

Plus, it forces responsbility onto the employee, where it should be.........

Outside of THIS board, how many people who got pensions would be SCREWED without them? Almost everyone........
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Old 12-04-2007, 08:08 AM   #5
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The numbers for the employer contribution are pretty nice, but I'm not sure I'd be comfortable with the company controlling where my investments went.
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Old 12-04-2007, 08:37 AM   #6
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I think this is clearly a case of people wanting to "have their cake, and eat it too". On the one hand you have people that say, "I am just not smart enough to make my own investment decisions". That is why you are starting to see companies respond with default investments, default contributions to the 401k etc. In the company that I work for, they will start taking out 4% of your pay to the 401k to start. You actually have to formally request them to STOP taking money out to go to the 401k if that is what you want. This is in direct response to people not saving into their 401k's when they should, and legal suits that get filed against companies for "letting their retirement fail."
On the other hand, you have other employees that say, "Wait a minute, I am a savvy investor, I want to invest in what I think is best for myself. I know it is more risky and not quite as safe... but that is a risk I am willing to take for the possible gains." So now most companies are in a difficult place trying to satisfy both groups of people.
I think the only answer to this problem is education. I believe that investment, and retirement education should become mandatory in our educational system. When a new grad enters the workforce, investing and retirement should not be a mystery for them.
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Old 12-04-2007, 09:20 AM   #7
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The numbers for the employer contribution are pretty nice, but I'm not sure I'd be comfortable with the company controlling where my investments went.
How are they doing that? You still have choices as far as how much in which fund you want.

Most 401K or 403B's have limited investment choices anyways........
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Old 12-04-2007, 09:43 AM   #8
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Devon is taking a risk by assuming so much management over investment decisions. By taking on this fiduciary duty, it risks claims for breach of that duty. But, it already has all sorts of liabilities with its pension and odds are it would be well served by converting as many people it can to a souped up 401k.
Martha,

I'm not sure that Devon is taking on more fiduciary risk in changing is 401(k) plan investments to nothing but Target Date funds. Devon was already choosing the previous 401(k) investments, which consisted of stock, bond, and Target Date funds, for its employees.

Anyway, I'm not sure what the big brew-ha-ha is all about anyway. Many organizations, like TIAA-CREF, Vanguard, and virtually all colleges & universities , contribute to defined contribution plans on behalf of their employees instead of a defined benefit pension. Something on the order of 5-20% from the employer depending on things like age/years of service. And the employees also get a match. Also, at my company, according to my Total Benefit Statement, the cost of my pension to the company is around 12% of my pay [and I'm in early 30's].

It looks like the Devon employees still get to choose which TR fund their money will go into, so it's not like their ceeding that much control over to "the company."

I've always kind of been amazed that people think that by getting a 6% match on their 401(k), they're replacing a pension.

- Alec
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Old 12-04-2007, 09:47 AM   #9
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[quote=FinanceDude;584207]
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And pensions stick out like sore thumbs on a yearly financial statement. I for one see no problem, I wish more people had safe harbor 401K's. It works really well where a few people make a LOT more than the others.

Plus, it forces responsbility onto the employee, where it should be.........

Outside of THIS board, how many people who got pensions would be SCREWED without them? Almost everyone........
I agree with Finance dude. I "have" a pension. I could never save another dime and be fine if my pension comes through. But I continue to save just in case something falls apart. I figure worse case scenario- I'll be 55 with a lot of money to spend/ give to kids. Most of my co-workers are relying only on the pension. A little nuts if you ask me.

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Old 12-04-2007, 09:51 AM   #10
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Outside of THIS board, how many people who got pensions would be SCREWED without them? Almost everyone........
I don't think this is really fair--people who got pensions shouldn't be depending on them? That's what they were for, right?
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Old 12-04-2007, 09:56 AM   #11
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I don't think this is really fair--people who got pensions shouldn't be depending on them? That's what they were for, right?
It's definitely NOT fair, but tell that to IBM employees, airline employees. etc. I think people bury their heads rather than wanting to step up to the plate. A pension is only a promise, and unfortunately the news is full of broken/ altered promises. If someone is buying the promise, then buyer beware.

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Old 12-04-2007, 09:59 AM   #12
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Mudd,

You're right.

See my signature.
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Old 12-04-2007, 10:05 AM   #13
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"It's not really fair" meant not fair to imply people shouldn't be depending on pensions they were promised. I totally agree that a lot of people who were expecting pensions have been unfairly screwed out of them one way or another, but it's not their fault for depending on them--if part of your pay was in essence going toward a pension, that's part of your pay you were not receiving and able to save on your own. Hard to save what you didn't receive.

I'm looking ahead to employers gradually getting out of the benefits business--health care, paid vacays, retirement account contributions, etc.--altogether, actually. But until then employees will and should depend on those benefits....
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Old 12-04-2007, 10:31 AM   #14
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I don't think this is really fair--people who got pensions shouldn't be depending on them? That's what they were for, right?
What I meant was a larger picture focus. I was trying to make the point that when pensions were "all in vogue" after World War II, everyone worked 9-5 and got a nice pension, a little SS, and life was good........

To me, the dependence on pensions did not help people take responsibility for their retirement, their company did all the work for them. Survive 20 years or more, and we'll take care of you.

As we have seen, that was a promise the companies could not afford, which is why pensions are almost extinct unless you are a govt worker or a teacher. What DID NOT HAPPEN, is educating folks on how to REPLACE the nonexistent pension with a 401K.

If the Internet was aroundin the 60's and 70's, probably 70-75% of the folks on here would have one coming to them, I'll bet it's around 15% now.........

Both my parents are retired teachers, and their pensions and $8000 a month...........

Something tells me that's not the normal for the USA........

Today, most people still think they HAVE a pension, and it's called SOCIAL SECURITY.............
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Old 12-04-2007, 10:34 AM   #15
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It's definitely NOT fair, but tell that to IBM employees, airline employees. etc. I think people bury their heads rather than wanting to step up to the plate. A pension is only a promise, and unfortunately the news is full of broken/ altered promises. If someone is buying the promise, then buyer beware.
Mudd
In the go-go 80's, some companies had OVERFUNDED pensions, which made them vulnerable to takeovers.

The takeover company would determine the total future benefits they would have to pay on a PV basis, buy an annuity contract to cover that, and use the free cash after they took over the company to pay for exec bonuses or whatever............
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Old 12-04-2007, 01:06 PM   #16
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In the go-go 80's, some companies had OVERFUNDED pensions, which made them vulnerable to takeovers.

The takeover company would determine the total future benefits they would have to pay on a PV basis, buy an annuity contract to cover that, and use the free cash after they took over the company to pay for exec bonuses or whatever............
Absolutely... I worked for the Big 8 (at the time there were 8 ... and we had one manager who only did company takeovers to rob the pension plans... got tired of doing it and quit.
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Old 12-04-2007, 02:09 PM   #17
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Absolutely... I worked for the Big 8 (at the time there were 8)... and we had one manager who only did company takeovers to rob the pension plans... got tired of doing it and quit.
It would be mighty tough to rob pensions plans today................
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Old 12-04-2007, 05:54 PM   #18
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The Devil is in the details.........

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How are they doing that? You still have choices as far as how much in which fund you want.

I agree with Martha, Devon does seem to be taking additional fiduciary risk....everyone is hearing 'Target Funds' without maybe considering what's in the funds.

They're investing in thier own DB plan among other things:

Devon's target-date funds will consist of low-cost investments in its $614million defined-benefit pension plan, including alternative investments such as real estate investment trusts and inflation-indexed securities.
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Old 12-04-2007, 07:53 PM   #19
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I agree with Martha, Devon does seem to be taking additional fiduciary risk....everyone is hearing 'Target Funds' without maybe considering what's in the funds.

They're investing in thier own DB plan among other things:

Devon's target-date funds will consist of low-cost investments in its $614million defined-benefit pension plan, including alternative investments such as real estate investment trusts and inflation-indexed securities.
Well, to play devil's advocate, Enron had a heck of a choice, 100% in Enron stock.....sign me up!!
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Old 12-04-2007, 11:56 PM   #20
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In the go-go 80's, some companies had OVERFUNDED pensions, which made them vulnerable to takeovers.
And those over funded pensions, plus some glad-handing in Congress, caused the pension problems in the late 90s. The pensions would be ok if legislation didn't allow the clever execs and beancounters to raid funds and decrease contributions. Kinda like Social Security and their special IOUs.
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