Employers are cutting back on 401K plans: matching is going away, limited enrollment is up and some are closing plans altogether, according to Reuters.
If you haven't seen this, it's must-viewing:
PBS Frontline's "Can You Afford To Retire?"
To hear most employers tell it, their pension systems were too onerous. So, they decided to exploit a little known account in the tax code called a 401K. They would offer these, instead, touting greater flexibility, more ownership in retirement for the individual. Managed correctly, they would ensure a wealthy, comfortable retirement, and shift the burden away from the employer and onto the individual. It was a win-win for everyone, right?
Not so much.
The buy-ins for the program had been through payroll deduction. Most employers had a financial advisor on site about once a year, during open enrollment. If you were lucky, there were employer matching and quarterly visits from the advisor, but generally it was up to the employee to monitor the account all by herself. Perhaps she would read a book or two on finances and investing in the market? Perhaps she would attend the brown bag seminars on her lunch about reading a mutual fund prospectus? Or maybe not.
Or maybe no such seminars would be offered. It really depends on the employer.
These accounts, and their cousins (403B for not for profits and 457 deferred for a bit more flexibility, 529 for education), were a way for the employee to have a ‘stake’ in the profitability of Wall Street, to become – in effect – a shareholder and a cheerleader for unchecked capitalism. And in a way, it worked. Many of those who tout these programs and the stock market in general are always saying ‘but if you regulate x then the profits will be less and affect your (fill in the blank: education, retirement goals). So, we left a lot unregulated and unchecked because we all had a proverbial ‘piece of the pie.’ (Or did we??!!!)
Now, we’re not even going to have that. Companies are cutting back on their contributing matches for 401K plans and some aren’t even going to offer them at all, which means they take no responsibility for assisting you with retirement in any way shape or form.
A quarter of U.S. employers have eliminated matching contributions to employee 401(k) retirement plans since September to save money amid the economy's downturn, according to research released on Monday.
A quarter of U.S. employers also have instituted limited enrollment rather than open the savings plans to all employees, according to the study conducted for Charles Schwab Corp. by CFO Research Services.
Although the study showed 23 percent of companies have eliminated 401(k) matching contributions, most see the move as temporary, said Steve Anderson, who heads Retirement Plan Services at Charles Schwab, a financial services provider.
But, let’s look at the #s more closely: 25+23=48% of employers are engaging in these practices. Is yours one of them? And if so, what happens to your retirement? Or your existing account? I guess you’ll either be stuck with a personal savings account, a money market (if you can get one), CDs if you can get them or an IRA, again if you can afford to get one. If you can’t you’re on cat food and Social Security, I guess. And the scary part of that is Social Security insolvency – which I suppose we should hope doesn’t happen.
However, there are deeper, more troubling aspects to this recent action. This is the latest trend in corporate behavior – figuring how to get out from under your responsibilities and promises to your employees. They’ve already taken the teeth out of unions, they’ve already depressed wages. They’re doing their best to past the bulk of healthcare costs on to the employee. How much more will the average salary be able to take? How many people will be diligent about putting money away for retirement and not touching it for emergencies?
Please understand, what this effectively means is that many, many Americans will have little to no access in planning a retirement and will become heavily dependent on Social Security to see them through. Most likely, these will also see a precipitous drop in standard of living at the time they do retire. It is an impending disaster on a social and financial level for a significant part of the American population – all because companies want to save a little bit of money and hassle.
http://www.livescience.com/...
The ramifications of this may be greater in scope than we can possibly realize. Older Americans in the workforce longer may mean limited promotion opportunities for younger Americans, driving down the living wages of those on the ladder beneath them for years to come – this, in turn, will also limit the younger employees’ abilities to retire because they will have to work longer at lower wages to save more. And that’s assuming no other hits to their pocketbook are on the horizon.
But here’s the data from Live Science:
No surprise, but about three-quarters of adults in the so-called threshold generation (ages 50-64) have seen the value of their investments — mutual funds, individual stocks or retirement accounts such as 401(k)s — decline in the past year, according to the national survey of 2,417 Americans conducted Feb. 23 to March 23 by the Pew Research Center's Social & Demographic Trends Project.
About half of all working adults in this age group say they may delay their retirement, and 16 percent say they expect to never stop working, the survey found.
Overall, some 37 percent of all full-time working adults of all ages say they have thought in the past year about postponing their retirement. Women are more likely to feel this way (46 percent) than men (31 percent). And whites have thought about delayed retirement (40 percent) more than blacks (32 percent) and Hispanics (34 percent), the Pew survey found.
Why is this okay? Or even laudable? We’ll have our elderly working until they drop, and quite possibly the next few generations, too? And we should just chalk it up to the strength of the Puritan work ethic and stand proud? Really?
The net outcome of this is: Forget retirement. The corporations now own you, lock stock and barrel until you die. Unless you luck out in some way (win the lottery, get an inheritance or are already rich), you are no better off than people were at the turn of the century.
And to those who touted the whole personal investment, personal responsibility meme: What the hell do we do now? They're dumping us! So much for the solidarity of us all being invested shareholders. I guess some shareholders are more valuable and important than others.
And that’s progress?