U.S. employees to be automatically enrolled in company retirement plans

[meleana]

https://www.nbcnews.com/business/co...anges-who-is-eligible-spending-bill-rcna62751

Why do I have a sneaky suspicion that this has been pushed by the financial advisory industry coupled with the drive to privatize Social Security? Given the constant drumbeat concerning the impending cuts in SS benefits and numerous attempts to take SS private, this seems like the first step in that direction. It reminds me of the overhaul of pensions that turned into 401k's. Most of my friends have no clue what's going on with(in) those, even if the have them.

If the goal is to help workers have more retirement income, why not reform Social Security in such a way that would insure just that. With mandatory contributions to 401k, the big winners will be funds managers and barely regulated advisors. What do you think?

This is more government overreach. Why should “daddy” tell people what to do with their money? Big daddy already takes plenty of their money through taxes. Maybe an employee wants to invest in a Roth or Traditional IRA instead. Maybe they want to invest in a brokerage account. Or maybe has other priorities for their money. It’s the employees money and what they do with it is his/ hers personal choice and no one else’s business.

401ks should be opt in only.

 

[TheWizard]

I was automatically enrolled in my employer's 403(b) retirement plan back in 1973!
Mandatory contribution from my salary was 5% with no opt-out option. Additionally, my employer contributed 10% of my salary to my retirement plan. This went on for almost 41 years, so a decent accumulation.

Additionally, I had a totally optional Supplemental 403(b) plan to which I eventually contributed the max of around $23,000 per year back before I retired in 2013. That max amount increases most years and is higher now.

This worked out well in my case...

 

[punkinhead]

This is more government overreach. Why should “daddy” tell people what to do with their money? Big daddy already takes plenty of their money through taxes. Maybe an employee wants to invest in a Roth or Traditional IRA instead. Maybe they want to invest in a brokerage account. Or maybe has other priorities for their money. It’s the employees money and what they do with it is his/ hers personal choice and no one else’s business.

It's simple - the employee opts-out of the 401k and invests however they like. They aren't being forced to do anything.

 

[mystang52]

Keeping in mind the audience here, I think I'm an outlier with this suggestion: make the mandatory contribution amount 1%. My thought is that most people not voluntarily saving, now, will feel that 3% is too high. 1% has a better chance of staying inside a 401K.
MAYBE mandate gradual increases to that percentage with each year, perhaps 1/2%, until it reaches 3%. If the goal is to encourage retirement savings, and we have the known statistics showing how many people withdraw their contributions each year, this might improve the odds of success.

 

[Car-Guy]

This is more government overreach.

Yes BUT, seems okay to me as long as they can opt' out and they don't make it mandatory at some point further down the road.

I know at my 2nd megacorp, the CEO would often talk to groups of new employees and make the comment/suggestion to sign up for the companies 401k, put in the max (for full matching) and you'd retire a millionaire. I always felt that was a pretty bold general statement.

In my case, I always felt it was (let's say silly) not to get in my companies 401k plan. It was like saying no to a 7% salary increase.

 

[Aerides]

Mod reminder: Like all threads here, this is not the place to air political grievances.

 

[Closet_Gamer]

I'm generally in favor of this but perhaps it shouldn't started until you are 21 or even 25.

I've been helping a college student get her finances together. I mentioned in another thread how upset I was about her level of college debt.

One thing I bumped into was that the manager at her megastore had helpfully told her she should enroll in the 401k to get the max match. Nice person trying to do the right thing.

But this young lady needs cash now.

While she was being a little profligate in her spending (as 19 year olds do) the real issue was that she was simply up against it in terms of paying her own way in life while trying to get through school. As a result she had money on credit cards and still had an outstanding car loan @ 6.75% (whoever got her into that needs smack in the head).

The 401k contribution was the same as her car loan.

We shut off that contribution to get her some cash flow.

Back to opt-out, most people don't really understand this stuff and won't take any action. On balance, that's probably a good thing but maybe not before people are 21 or some other trigger point.

(BTW, kudos to the student. With a bit of guidance on how money works, cash flow, balance sheet and budgeting, she's gone straight after the issue and really gotten her spending into a better shape. She's incredibly diligent, just needed some help.)

 

[old medic]

If I were King, I would not allow loans or early withdrawals n 401Ks or IRAs. Period. . Those same people will need the money when they retire too.

I'll disagree. We got into a situation that almost cost us losing our home. Its was either bankruptcy or borrow. 401 loan was 9% and I kept the interest Vs twice the interest going to the bank. Plus the market took a big dip a few months later so bought back cheaper... What we now have extra padding and not "needed"

 

[pb4uski]

This is more government overreach. Why should “daddy” tell people what to do with their money? Big daddy already takes plenty of their money through taxes. Maybe an employee wants to invest in a Roth or Traditional IRA instead. Maybe they want to invest in a brokerage account. Or maybe has other priorities for their money. It’s the employees money and what they do with it is his/ hers personal choice and no one else’s business.



401ks should be opt in only.

If it were not for the fact that the general population has proven that they are, more often than not, totally incapable of saving for retirement, you would have some good points. Proof positive is the totally pathetic amount of retirement savings for most people currently in their 50s and 60s.

Big daddy isn't taking anything, it's still the employees money. If they prefer a tIRA or a Roth or a taxable brokerage account then the can simply opt-out and contribute to a tIRA or Roth or taxable account. Easy peasy.

If we don't let "daddy" help steer people who are unwilling to save for retirement to save, then the rest of us who act responsibly will end up having to help pay for them.

It is their money, and if they don't want anything withheld they can just opt-out.

Where you state it should be opt-in only I think you are just plain wrong.

 

[indiajust]

The biggest thing I fear is conflating the student loan mess with retirement. That aspect looks like another effort to prop up high priced education even higher.

Participating in 401k's is a big reason I have wealth and independence. Spreading the love by making the default yes gets a big thumbs up. With in-service rollovers you can take charge of your money and avoid lousy internal choices. I am sure the Robinhood crowd could quickly roll and manage their retirement money.

The last thing I would advocate for is more government retirement via FICA. Pitting different generations of citizens against each other for political profit is not in anyones financial interest... except perhaps the Man!

If they can mandate 401k participation... would they please make FICA voluntary?

 

[TheWizard]

If it were not for the fact that the general population has proven that they are, more often than not, totally incapable of saving for retirement, you would have some good points. Proof positive is the totally pathetic amount of retirement savings for most people currently in their 50s and 60s.

Big daddy isn't taking anything, it's still the employees money. If they prefer a tIRA or a Roth or a taxable brokerage account then the can simply opt-out and contribute to a tIRA or Roth or taxable account. Easy peasy.

If we don't let "daddy" help steer people who are unwilling to save for retirement to save, then the rest of us who act responsibly will end up having to help pay for them.

It is their money, and if they don't want anything withheld they can just opt-out.

Where you state it should be opt-in only I think you are just plain wrong.

I basically agree.
But clearly, just putting $7000 per year into an IRA of either type isn't going to get most folks to retirement anytime soon...

 

[pb4uski]

I basically agree.
But clearly, just putting $7000 per year into an IRA of either type isn't going to get most folks to retirement anytime soon...

Fair point, but... $7k a year for ages 23-62 accreted at 5% annually is $846k which using the 4% rule would generate $33,824 of withdrawals annually and you have SS on top of that.

=FV(5%,(62-22),-7000,0) = $846k

And that doesn't consider that the $7k limit increases each year for inflation.

 

[pb4uski]

... If they can mandate 401k participation... would they please make FICA voluntary?

To be clear though, this isn't "mandating" 401k participation because an employee can opt-out.

Given the pathetic amount of retirement savings that many of our generation have with a voluntary system for 401k contributions can you imagine what a mess we would be in if FICA was voluntary as you suggest? A very poor idea for sure.

The unfortunate reality is that most people don't understand delayed gratification, live from paycheck-to-paycheck and would have nothing saved for retirement if not for FICA... and this opt-out provision will help many save so we who do save don't have to bail them out.

 

[Taxman59]

To be clear though, this isn't "mandating" 401k participation because an employee can opt-out.

Not only can they opt-out, but annually they can make withdrawals. I experienced that with the place I w****ed before. Contributions would be made, matches would be made, and then a new caw was purchased or a vacation was taken and the account went down to near $0. Then the cycle starts again. You can't fix stupid (and these people were in the financial service industry!!!)