The Retirement Crisis: Is the 401(k) To Blame? - CBS MoneyWatch.com

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By Charlie Farrell

Baby Boomers are waking up to the fact that many of them don’t have enough money saved for retirement. So what’s the cause of this retirement mess? A popular scapegoat is the 401(k) plan. But the 401(k) has little to do with it.

Consider that it’s not just Baby Boomer 401(k) plans that are coming up short. Most defined benefit pension plans are also underfunded, just look at the mounting liabilities for public pensions that are estimated at anywhere from $1 trillion to $3 trillion.

So what’s to blame for the lack of retirement preparedness? Two things: inadequate savings and risky investment strategies.

In general, you’ve got to save between 12% and 15% of pay every year if you want some reasonable chance of retiring on an income that is comparable to what you earned prior to retirement. And by every year, I mean every year from ages 25 to 65. It takes about 40 years worth of savings, not just a couple of years.
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Boomers Find 401(k) Plans Come Up Short - WSJ.com

By E.S. BROWNING

The 401(k) generation is beginning to retire, and it isn't a pretty sight.

The retirement savings plans that many baby boomers thought would see them through old age are falling short in many cases.

The median household headed by a person aged 60 to 62 with a 401(k) account has less than one-quarter of what is needed in that account to maintain its standard of living in retirement, according to data compiled by the Federal Reserve and analyzed by the Center for Retirement Research at Boston College for The Wall Street Journal. Even counting Social Security and any pensions or other savings, most 401(k) participants appear to have insufficient savings. Data from other sources also show big gaps between savings and what people need, and the financial crisis has made things worse.

This analysis uses estimates of 401(k) balances from the end of 2010 and of salaries from 2009. It assumes people need 85% of their working income after they retire in order to maintain their standard of living, a common yardstick.

Facing shortfalls, many people are postponing retirement, moving to cheaper housing, buying less-expensive food, cutting back on travel, taking bigger risks with their investments and making other sacrifices they never imagined.
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Don't Make These 401(k) Mistakes - CBS MoneyWatch.com

Don't Make These 401(k) Mistakes - CBS MoneyWatch.com

Slow and Steady Saving Still Pays - WSJ.com

Image via WikipediaBy TOM LAURICELL

The path toward having enough money to enjoy a comfortable retirement is a long one. And as the recent decade in the U.S. stock market shows, it's one where patience pays off.

For younger retirement savers who diligently put money away, that long march of time also provides a crucial ally: the ability to recover from inevitable losses. That's especially the case for 401(k) investors who don't pass up the essentially free money that comes by taking full advantage of any matching contributions provided by their employers.

There's no reason to sugar-coat the miserable experience most stock investors have had since the collapse of the technology-stock bubble beginning in March 2000. The Standard & Poor's 500-stock index, the most commonly used market barometer, has risen an average of just 1.4% per year over the past 10 years, a 3.6% gain once dividends are included.

It was only last month that the Dow Jones Industrial Average pushed above where it stood in mid-September 2008 when giant brokerage house Lehman Brothers collapsed.

But let's look at how steady savings and the passage of time can benefit younger 401(k) investors. Consider a person making $40,000 per year in 2000 who contributed 6% of her salary -- $200 per month -- in the first year with a company match of 3%, or $100 to start.

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80% of Suspended 401(k) Matches to be Restored by Mid 2011 - Financial Planning

By Lee Barney, Money Management Executive

Employers are clearly more optimistic about the economy, for another 40% that had suspended 401(k) contributions will resume them by mid 2011, doubling the 40% that already have resumed suspended or reduced matches, the Profit Sharing/401(k) Council of America announced Friday.

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New Small Business Law Could Have Big Effect On Retirement Accounts

A new law aimed at helping stimulate small business job growth through tax deductions could have major consequences for anyone with a retirement savings account at work, a University of Illinois expert on taxation and elder law notes.

Law professor Richard L. Kaplan says an obscure provision in the recently enacted Small Business Jobs Act allows 401(k), 403(b) or 457 account holders to convert their retirement savings into a tax-advantaged Roth-version of the same account.

The good news, according to Kaplan, is that by converting to a Roth variant, income can grow completely tax-free because no tax is assessed when funds are withdrawn from a Roth account during retirement.

The bad news: Those who convert retirement savings account to Roth plans must report the amount converted as income, a move that could potentially bump them up into a higher tax bracket.


Source: Phil Ciciora University of Illinois at Urbana-Champaign
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Facts of the Day | Retirement USA

Image via Wikipedia39 percent of nonwhite or Hispanic families have a retirement savings account.

46 percent of full-time African American workers participate in a retirement plan at work.

Only 4 out of 30 OECD countries have higher elderly poverty rates than the United States.

3 in 10 full-time Hispanic workers participate in a retirement plan at work.

1 in 5 African-American and Hispanic seniors live below the federal poverty line.

Half of Hispanics age 65 and older have a yearly income of less than $12,181.

Half of African Americans age 65 and older have a yearly income of less than $14,620.

A women who reached age 65 this year can expect to live another 20.4 years.

58% of older women rely on Social Security for more than half of their incomes.

Half of all families with 401(k)-type retirement plans and IRAs have less than $45,000.

1 in 2 private-sector workers do not participate in a retirement plan other than Social Security.

Half of retirees age 65 and older have a yearly income of less than $15,635.

$14,050 is the average Social Security benefit received by retirees this year.

The nation's Retirement Income Deficit is $6.6 Trillion.
More Information on Each of the Facts

19% Decline in U.S. Retirement Benefits Seen Over 10 Years - Towers Watson

Image by Getty Images via @daylifeAccording to Towers Watson's industry-specific analysis — including defined benefit (DB) and defined contribution (DC) plans, as well as retiree medical and life insurance plans — the value, as measured by percentage of pay, of total retirement benefits for U.S. workers dropped 19% between 1998 and 2008. A decrease in the value of DB plans propelled the overall drop, which was offset to some extent by an increase in DC plan value.

During the 10-year period, the deepest decline in total retirement benefits occurred in the retail and wholesale industry: a drop of 33% (from 5.72% to 3.82% of pay). Among the eight industries and 642 companies analyzed in the study:

• Total retirement benefits ranged from 9.3% (pharmaceutical industry) to 3.8% of pay (retail).
• Only service industry workers saw their retirement benefit value increase: a gain of 3% (from 4.16% to 4.30% of pay).
• The largest decline occurred in the retail sector: a drop of 33%.
• The gas/energy/natural resources/electric industry had the highest level of DB benefits in 2008: 4% of pay.
• The retail industry had the lowest level of DB benefits in 2008: 0.4% of pay.
• The pharmaceutical industry had the highest level of DC benefits in 2008: 5.7% of pay.
• The health care industry had the lowest level of DC benefits in 2008: 2.9% of pay.

During the past decade, many companies replaced traditional DB plans with DC and other account-based retirement programs for new workers. The financial crisis and the Pension Protection Act of 2006 contributed to a shift in retirement plan strategies, as well as a reevaluation of 401(k) plans as employee balances plummeted.
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Employers: 401(k)s Won’t Fully Fund Worker Retirement - Planning to Retire (usnews.com)

By Emily Brandon

Employers generally offer 401(k)s to attract and retain productive workers, not to propel those employees into a secure retirement. The majority of companies (51 percent) offer a 401(k) to keep high performing employees happy, according to a recent Wells Fargo and Boston Research survey of 357 employers. Less than half (45 percent) of the firms say their benefit programs primarily aim to help workers achieve a financially sound retirement.

The top 401(k) concerns among plan sponsors are the stock market’s impact on account balances (26 percent) and worker appreciation and use of the plan (25 percent). Only 19 percent of employers have a top priority of providing employees with the financial ability to retire. Just 10 percent of the employers in the survey project each employee’s retirement income and compare it to their expected retirement needs.
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Annuities coming to your retirement plan Robert Powell - MarketWatch

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By Robert Powell, MarketWatch

Some folks want 'em. Some don't. That's the upshot of the 600-plus letters the U.S. Labor and Treasury Departments received in response to a request for information about including income annuities as a pay-out option for 401(k) plans. But there's clearly no consensus on what is certain to become a political hot potato.

In February, the Labor and Treasury Departments sent out a request for information (RFI) soliciting public comments to help the agencies determine what steps to take "to enhance retirement security" for workers in 401(k) and other employer-sponsored retirement plans "through lifetime annuities or other arrangements that provide a stream of income after retiring."

The government sought comments on a broad range of topics, including:

* The advantages and disadvantages of distributing retirement savings as a lifetime stream of income both for workers and employers, and why lump-sum distributions are chosen more often than lifetime income options.
* The type of information participants need to make informed decisions in selecting how to pay out their retirement savings.
* Disclosure of participants' retirement income in the form of account balances as well as in the form of lifetime streams of payment. Read the release at this website.Read the proposed rule at this site.
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GAO Report on Retirement Savings

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What GAO Found:
Automatic enrollment appears to significantly increase participation in 401(k) plans according to existing studies, but may not be suitable for all plan sponsors. Some studies found that participation rates can reach as high as 95 percent under automatic enrollment. Available data indicate that the percentage of plans with automatic enrollment policies increased from about 1 percent in 2004 to more than 16 percent in 2009, with higher rates of adoption among larger plan sponsors. In most cases, these plans automatically enroll only new employees, rather than all employees. We also found that automatic enrollment may not be suitable for all plan sponsors, such as those with a high-turnover workforce. Further, some data show that while automatic escalation policies—which automatically increase saving rates over time—are increasingly common, they lag behind adoption of automatic enrollment. In combination with low initial contribution rates, this could depress savings for some workers. Also, the emergence of target-date funds—funds that allocate investments among various asset classes and shift to lower-risk investments as a “target” retirement date approaches—as the typical default investment raises questions in light of the substantial losses such funds experienced in the past year.
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401(k) Policy Changes Could Reduce the Long-term Effects of Leakage on Workers’ Retirement Savings

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Under federal regulations, 401(k) participants may tap into their accrued retirement savings before retirement under certain circumstances, including hardship. This “leakage” from 401(k) accounts can result in a permanent loss of retirement savings. GAO was asked to analyze
(1) the incidence, amount, and relative significance of the different forms of 401(k) leakage;
(2) how plans inform participants about hardship withdrawal provisions, loan provisions, and options at job separation, including the short- and long-term costs of each; and
(3) how various policies may affect the incidence of leakage.

To address these matters, GAO analyzed federal and 401(k) industry data and interviewed federal officials, pension experts, and plan administrators responsible for managing the majority of 401(k) participants and assets.

What GAO Recommends
GAO is suggesting that Congress consider changing the requirement for the 6-month contribution suspension following a hardship withdrawal. In addition, GAO recommends that the Secretary of Labor promote greater participant education on the importance of preserving retirement savings, and that the Secretary of the Treasury clarify and enhance loan exhaustion provisions to ensure that participants do not initiate unnecessary leakage through hardship withdrawals. Both agencies agreed to take actions consistent with GAO’s recommendations.
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H.R. 3612: Retirement Savings Access Act of 2009 (GovTrack.us)

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To amend the Internal Revenue Code of 1986 to waive the 10 percent penalty with respect to early retirement distributions for certain unemployed individuals.

Sponsor: Rep. Paul Broun [R-GA10]
Cosponsors: Nathan Deal [R-GA9],Jack Kingston [R-GA1], Lynn Westmoreland [R-GA3]

Full Text

Status:

Occurred: Introduced Sep 22, 2009
Occurred: Referred to Committee on Ways and Means

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How the Crash Hit 401(k) Investors - WSJ.com

By TOM LAURICELLA During the worst of last year's stock-market declines, most investors nearing retirement stayed true to advice warning against responding to short-term ups and downs: They didn't make changes to their 401(k) accounts. Those who did react became more defensive and scaled back on stocks. Which group was right? Was it those who stuck with a buy-and-hold plan focused on long-term results or the minority of investors who tried to protect their nest eggs? Read More: How the Crash Hit 401(k) Investors - WSJ.com

Tax Rule Slams Hard-Hit IRAs, 401(k)s

By TOM LAURICELLA, Wall Street Journal (subscription required) In the past month, Congress and the Bush administration have worked feverishly to help Wall Street. Now millions of older adults are seeking last-minute help with a problem that directly affects Main Street: required withdrawals from retirement accounts. Individual taxpayers, lobbying groups and even some politicians are pressing Washington to change the rules regarding "required minimum distributions" (RMDs) from individual retirement accounts, 401(k)s and related savings vehicles. Two weeks ago, AARP, the large membership group for older adults, asked the Treasury Department to give IRA holders the option of not taking a required distribution this year. It's an idea backed by President-elect Barack Obama. The problem, says David Certner, AARP's legislative-policy director, is that time is running out. Typically, distributions must be taken by Dec. 31, and many account holders wait until November or December to withdraw the needed funds.

Investment Advice--Participants and Benficiaries; Hearing

The Department of Labor will hold a hearing on the Department's proposed regulation under provisions of the Employee Retirement Income Security Act of 1974, as amended (ERISA, or the Act), and the Internal Revenue Code of 1986, as amended (Code), relating to the provision of investment advice to participants and beneficiaries of self-directed individual account plans and individual retirement accounts (IRAs). DATES: The hearing will be held on October 21, 2008, beginning at 8 a.m., EST. Persons interested in presenting testimony and answering questions at the public hearing must submit requests and certain other information (as discussed below), by 3:30 p.m., EST, October 16, 2008.

Retirement Wreck - Are 401(k)s Still Viable for Saving?

By Nancy Trejos,Washington Post Staff Writer Sunday, October 12, 2008; Page F01 For many Americans, 401(k) plans were supposed to be their own little golden parachutes into retirement. Now, it seems, those parachutes may not open in time. The global financial crisis that revealed the flaws of Wall Street has also exposed the vulnerability of America's retirement system. Employers have increasingly abandoned traditional pensions, forcing workers to rely on 401(k)s and similar plans that have a lot more exposure to the stock market. The assumption was that even if the market suffered short-term losses, over time it would rise, allowing workers to recoup their savings. But the steepness of this year's market collapse and the still-uncertain depth of the economic downturn has prompted lawmakers, academics and economists to question the wisdom of letting workers hitch their retirement fortunes to the precariousness of the stock market.

From iPod Generation to Baby Boomers, Workers Need Better Retirement Savings Tools

by Sen. Enzi (ranking Member of the Senate Health, Education, Labor & Pensions (HELP) Committee) in The Hill's Congress Blog. American workers and retirees have nearly $2.3 trillion in 401(k) and related accounts, making it more important than ever for Americans to invest that money wisely in light of what’s occurring in our current capital markets.Today in the Senate Health, Education, Labor and Pensions Committee, we held a hearing, titled “401(k) Fee Disclosure: Helping Workers Save for Retirement,” focusing on this challenge. Anyone who has been watching the news knows that some of our financial institutions have forgotten or ignored the two principal foundations of sound investing: diversify your investments and limit your risks. We need to follow these lessons as we save for our golden years. We cannot afford to squander our retirement savings through poor investment decisions. Workers and retirees need to have the right information about their retirement plans and to have the tools and technology to manage that information and make the best decisions for themselves and their families. If the so-called ‘Genius’ software that’s capturing the imagination of the iPod generation by taking a single song and creating a whole playlist of music suited to your likes and dislikes, technology should be able to help you predict your financial needs in retirement - and help you manage your savings. Under the Pension Protection Act, which Congress passed two years ago, we have made great strides in reducing the hurdles for companies to establish auto-enrollment 401(k) plans. However, the nation still lags behind in the number of small businesses offering retirement benefit plans. According the Congressional Research Service, only 26 percent of employers with fewer than 25 employees have retirement plans. This compares to 65 percent of all large companies that have pension plans. Anything that we do with respect to 401(k) fee disclosure and investor education should not place disproportionate burdens on small entities nor should it saddle them with additional liability.