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

[tenant13]

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?

 

[kgtest]

I think saving and investing is very personal. Just because you can force them to contribute, you can't prevent anyone from withdrawing. I remember a company I worked for a while back had our annual 401k rep come in before we had to make elections, trying to drum up higher contribution rates. They mentioned something staggering that like 90% of people under X amount of income withdrew their company match funds in the same year they were contributed. SO they were really shooting themselves in the foot.

I was thinking at the time, man they were losing all their potential gains PLUS having to deal with the tax consequences for early withdrawals...but I guess if you need the money, you need the money and that is why they were raiding 401ks prematurely.

 

[punkinhead]

I think it's a good thing to have an opt-out vs opt-in model. I've known many, many otherwise smart people over the years who weren't participating in our 401k. My daughter is on her third job in about 6 years and all of them automatically enroll new employees at about a 5% rate and into reasonable target date funds. They're not forcing anything on anyone - people are free to reduce or eliminate contributions.

 

[audreyh1]

Overall I think it’s a good thing by default as people aren’t saving enough for retirement. They can always opt out if they are determined.

 

[Gremlin]

People can opt out. And I think it’s good to force people to at least think about saving for retirement.

 

[jazz4cash]

I think it's a good thing to have an opt-out vs opt-in model. I've known many, many otherwise smart people over the years who weren't participating in our 401k. My daughter is on her third job in about 6 years and all of them automatically enroll new employees at about a 5% rate and into reasonable target date funds. They're not forcing anything on anyone - people are free to reduce or eliminate contributions.

I agree. I actually thought it was already a requirement. It's true some lousy employers will offer crappy 401k plans that are not in the employee's best interest.

 

[CRLLS]

Automatic enrollment is good. As it stands today, too many do not sign up. i think 1) partly because of intent; 2) partly because they meant to but don't follow thru and 3) partly due to just not being aware of it. This will cover all 3 IMO. For those in that 1st category, they are fully aware and can opt out. I look at it as the old pension plan or Profit sharing. There was no sign-up necessary for those, mostly gone, retirement benefits with the exception of now the employee paying for some of the way.

 

[NanoSour]

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?

I think your suspicions are fully warranted. This is totally for the benefit of the financial dis-services industry and doesn't help the worker or retirees at all. Instead of semi-forcing 401K contributions, just channel that money into the SS system and guarantee a livable SS pension for all Americans. This seems to be such a no brainer to me.

 

[Chuckanut]

I would add a forth reason many people don't signup - It's too confusing.

Most young people don't realize that it's the number of doublings that produces the big returns when a person hits retirement age. Start early enough and if you can add just one doubling the results are staggering. I sometimes show them a spread sheet that show how much more one can earn by starting an invest program at 20 instead of 30 years old. Sneek in one more doubling and it makes a huge difference.

Invest $2000 in an IRA, assume it doubles every 10 years.

End of:
1st decade - $4000
2nd decade - $8000
3rd decade - $16,000
4th decade - $32000

It's an eye opener to many young people I talk to.

 

[Midpack]

Having watched 80 employees behavior WRT their 401(k) for almost 20 years, having employees in by default with the option to opt out is a great idea. My MegaCorp adopted that approach with all new hires more than 15 years ago. It gave us an opportunity to explain one-on-one the benefits and how's of 401(k)'s to new employees the first time they came to us asking 'what's this line on my paycheck stub.' Unfortunately many of the employees who should have stayed in, cashed out/opted out as soon as their first need arrived - often a new car, vacation or another (more trivial) totally elective expense...

It's well known that too many people haven't/aren't planning adequately for retirement, so I am all for actions that might help.

We also conducted mandatory 401(k) discussions every year, that wasn't effective for 95% of employees but it did wake a few up along the way. Some even thanked us years later when they discovered they were sitting on a significant 401(k) balance in their 40s, 50s or later.

You can lead a horse to water, but you can't make them drink...

 

[CRLLS]

I would add a forth reason many people don't signup - It's too confusing.

Most don't realize that it's the number of doublings that produces the big returns when a person hits retirement age. Start early enough and if you can add just one doubling the results are staggering. I sometimes show them a spread sheet that show how much more one can earn by starting an invest program at 20 instead of 30 years old. Sneek in one more doubling and it makes a huge difference.

Invest $2000 in an IRA, assume it doubles every 10 years.

End of:
1st decade - $4000
2nd decade - $8000
3rd decade - $16,000
4th decade - $32000

It's an eye opener to many young people I talk to.

I'll accept your 4th reason. I became totally empowered when I leaned the "Rule of 72." For a while I was a "72" evangelist. I saw the light is some eyes when they were preached to. But sadly, not all grasped the link. "Math are hard" as some here have said.

 

[aaronc879]

People can opt out. And I think it’s good to force people to at least think about saving for retirement.

^^This

The new job i'm starting on January 2nd has an automatic 401K employee contribution of 6% but you can opt out if you wish. I think that is the way it should be.

 

[tenant13]

Having watched 80 employees behavior WRT their 401(k) for almost 20 years, having employees in by default with the option to opt out is a great idea. My MegaCorp adopted that approach with all new hires more than 15 years ago. It gave us an opportunity to explain one-on-one the benefits and how's of 401(k)'s to new employees the first time they came to us asking 'what's this line on my paycheck stub.' Unfortunately many of the employees who should have stayed in, cashed out/opted out as soon as their first need arrived - often a new car, vacation or another (more trivial) totally elective expense...

It's well known that too many people haven't/aren't planning adequately for retirement, so I am all for actions that might help.

We also conducted mandatory 401(k) discussions every year, that wasn't effective for 95% of employees but it did wake a few up along the way. Some even thanked us years later when they discovered they were sitting on a significant 401(k) balance in their 40s, 50s or later.

You can lead a horse to water, but you can't make them drink...

In a way you've proved my (other) point: most people (not all obviously) are too dumb to be trusted with saving for retirement. Which creates an opening for the predatory 401k practices: investing in mediocre performing mutual funds with high fees AND charging for the "convenience". The "forced" electable contributions would be way better utilized if they were going into Social Security fund where they would stay beyond the reach of the savers until they retire. Think of it as an opportunity to increase your SS payments.

I'm not against people being in control of their own money. On the contrary, I would like the government to be even less involved in my financial affairs. But imo what this bill does is allowing the industry that is known for its unethical practices to profit off the unwitting individuals.

 

[MRG]

Why did I think we already did this about 15 years ago? I swear I remember this was going to be a big deal for Megacorp's stock price, and to some extent, there was a kick as they were in financial services.

I do believe it's better to opt out than in. I had to talk with my teams every year about the importance of contributions blah blah. I was surprised by how many people admitted they didn't for various reasons. Oh well, then I walked out the door when I was 56.

 

[JoeWras]

Lizzo: "It's about damn time"

 

[MarieIG]

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?

Ok, I haven't read the bill because I suspect that some of the provisions (which I can do nothing about) would get me upset.

With regard to the opt in provision, I am ok with that. I am aware however, of excessive management fees packed into the 401ks, passed on to the workers, of which I am not a fan. Also, a number of the plans don't have great choices, and even when they do (i.e. a plan index fund) it is subject to a hefty management fee. I also believe that all workers should have access to a 401k type savings account with very minimal fees. And with all the talk about matches, not all employers give matches. Mine did not.

I would probably have raised the IRA limits to match 401k limits for those without company plans; or those with expensive 401ks, who wanted to opt out.

 

[JoeWras]

With regard to the opt in provision, I am ok with that. I am aware however, of excessive management fees packed into the 401ks, passed on to the workers, of which I am not a fan. Also, a number of the plans don't have great choices, and even when they do (i.e. a plan index fund) it is subject to a hefty management fee. I also believe that all workers should have access to a 401k type savings account with very minimal fees. And with all the talk about matches, not all employers give matches. Mine did not.

This is what separates the good employers from the bad.

My Kilocorp tried to use a local bank who was starting up a 401k business. Oh boy, that was a disaster. Every statement was followed up by another statement that corrected the previous. I don't even want to know what the fees were, it was over 25 years ago and I transferred it to a rollover IRA when I left Kilocorp.

Exciting times!

 

[Midpack]

In a way you've proved my (other) point: most people (not all obviously) are too dumb to be trusted with saving for retirement. Which creates an opening for the predatory 401k practices: investing in mediocre performing mutual funds with high fees AND charging for the "convenience". The "forced" electable contributions would be way better utilized if they were going into Social Security fund where they would stay beyond the reach of the savers until they retire. Think of it as an opportunity to increase your SS payments.

While that happens, both MegaCorps I worked for had 401(k) committees who were responsible for choosing the 401(k) admin and exactly which funds are offered to employees. Both megacorps also paid the additional admin fees for employees.

The problem with your Soc Sec suggestion is it’s a paygo system and there’s no guarantee the additional money would be there. We’re all facing a shortfall beginning 2034 (latest estimate I’ve seen) that our representatives have ignored for decades.

I’m glad I have sole control over part of my retirement funds, our 401(k)’s and additional taxable savings/investments.

 

[tenant13]

The problem with your Soc Sec suggestion is it’s a paygo system and there’s no guarantee the additional money would be there. We’re all facing a shortfall beginning 2034 (latest estimate I’ve seen) that our representatives have ignored for decades.

I’m glad I have sole control over part of my retirement funds, our 401(k)’s and additional taxable savings/investments.

That’s an excellent point. And like you I’m very glad to be in control of my financial future.

I’m certainly torn between my support for financial independence and my mistrust of the retirement “industry”. I wish there was a way of empowering as many people as possible but I don’t see this bill as a solution. I would rather see an investment in education so when kids leave high school they understand how credit works, what is a compound interest and that nobody will take care of their money as well as they could do it themselves. You know, “teach them how to catch a fish” n’ all that.

 

[Midpack]

I’m certainly torn between my support for financial independence and my mistrust of the retirement “industry”. I wish there was a way of empowering as many people as possible but I don’t see this bill as a solution. I would rather see an investment in education so when kids leave high school they understand how credit works, what is a compound interest and that nobody will take care of their money as well as they could do it themselves. You know, “teach them how to catch a fish” n’ all that.

While I do agree and support the idea, there’s no good reason parents can’t teach their kids about personal finance - instead of expecting someone else to do it. We seem to expect teachers to raise our kids, and then not supporting teachers on top of it. I remember when parents raised their own kids, and supported teachers…but I don’t want to highjack this thread.

 

[W2R]

My opinion is that I have been retired for a long time and this is pretty much irrelevant for me personally as long as SS remains available to those like me who are on it. Social Security is known to me so I strongly favor it.

I also firmly believe that sadly, the vast majority of Americans are not as mathematically or financially savvy as are the members of this forum. So, if they are not forced to participate in something, many won't. I fear the result could be that we'll start seeing increasingly large numbers of the elderly (especially the alcoholic, drug addicted, homeless, mentally deficient, and so on) dying in misery on the streets. It's hard to imagine our country becoming so heartless and I hope that does not come to pass.

I can imagine that especially after such a large SS COL increase this year, some politicians might be easily convinced that it would be a good thing to get people on some other system to free up the increased cost of SS.

 

[jollystomper]

With regard to the opt in provision, I am ok with that. I am aware however, of excessive management fees packed into the 401ks, passed on to the workers, of which I am not a fan. Also, a number of the plans don't have great choices, and even when they do (i.e. a plan index fund) it is subject to a hefty management fee. I also believe that all workers should have access to a 401k type savings account with very minimal fees. And with all the talk about matches, not all employers give matches. Mine did not.

I agree. The problem with some of these bills is the potential to be "one-sided". Automatic opt-in to 401K is fine, but who is ensuring that the 401K program is providing a wide range of options at a low expense ratio, and some level of matching? While I was fortunate to have worked for a Megacorp which did provide lots of options, great matching, and was ranked among the best in terms of low expenses, I just hope something is done to ensure this is much more common across all 401Ks.

 

[MRG]

My opinion is that I have been retired for a long time and this is pretty much irrelevant for me personally as long as SS remains available to those like me who are on it. Social Security is known to me so I strongly favor it.

I also firmly believe that sadly, the vast majority of Americans are not as mathematically or financially savvy as are the members of this forum. So, if they are not forced to participate in something, many won't. I fear the result could be that we'll start seeing increasingly large numbers of the elderly (especially the alcoholic, drug addicted, homeless, mentally deficient, and so on) dying in misery on the streets. It's hard to imagine our country becoming so heartless and I hope that does not come to pass.

I can imagine that especially after such a large SS COL increase this year, some politicians might be easily convinced that it would be a good thing to get people on some other system to free up the increased cost of SS.

Sadly, I think many of those people end up in prison. A great deal of mentally ill do today.

DW has a mentally ill nephew going on 40 who has been imprisoned for most of his adult life. He knows that medicine makes him better but not as good as his friends' drugs do. Since he's on parole, eventually he pees dirty or is involved in something stupid and has a fast track back to prison. It doesn't make any logical sense because it doesn't.

 

[W2R]

Sadly, I think many of those people end up in prison. A great deal of mentally ill do today.

DW has a mentally ill nephew going on 40 who has been imprisoned for most of his adult life. He knows that medicine makes him better but not as good as his friends' drugs do. Since he's on parole, eventually he pees dirty or is involved in something stupid and has a fast track back to prison. It doesn't make any logical sense because it doesn't.

Well, at least in prison they have shelter, food, and water, and I presume some semblance of medical care. That's a whole lot better than dying on the streets. I don't condone their (mis)behavior, but I still think humans should be treated better than feral dogs when possible.

 

[razztazz]

who is ensuring that the 401K program is providing a wide range of options at a low expense ratio, and some level of matching?

Don't worry, the Free Market will.