Author Topic: Everyone Should Have Access to a 401K  (Read 18479 times)

oldtoyota

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Everyone Should Have Access to a 401K
« on: October 14, 2013, 01:52:28 PM »
1. Everyone should have access to a retirement savings plan with tax benefits.
2. This plan should not be tied to the current employer.

What are your thoughts?


"As Prof. Teresa Ghilarducci has been saying for years, the 401(k) was an experiment — and it’s failed. They cost too much because employers can pass along most of the costs to employees, which eat away returns. Some absorb plan expenses, but they are the rare exceptions. Unlike big medical insurance plans, employers don’t work hard enough to get the best price on mutual funds within the plan, although they are compelled by law to do so...

For the sake of simplicity, employers can offer funds that charge less than 0.10 percent annually. These are available in off-the-shelf mutual or exchange-traded funds. But far too many plans charge employees “retail” rates of 1 percent or more annually. Why such a disparity? Because employers can pass along the costs and there are no minimum standards for a 401(k) other than it be “prudently” managed. Even more criminal are small-company plans set up by insurance companies, which charge more than 2 percent annually."

http://www.forbes.com/sites/johnwasik/2013/04/24/why-401ks-have-failed/

matchewed

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Re: Everyone Should Have Access to a 401K
« Reply #1 on: October 14, 2013, 03:13:53 PM »
1. Agreed. I think most industrialized nations have realized this and have enacted it in one form or another.

2. I don't totally agree. I think it can be tied to employer, it is a great way for employers to show or provide incentive for potential employees.

Regarding the fees, I believe I said this when that frontline report was discussed. No one cares more about your future and retirement than you. Financial education and literacy even to adults (but primarily to children and teens) is the only way to combat shitty retirement plan options. Isn't this one of the concepts behind MMM, discover what is in your control and work it to your advantage. You can control better options in your 401k with your employer, hell it's common advice here for the "My 401k Sucks" posts. Sometimes it may be through willful passing of costs, but other times it's just that the employer is just as blind as the employees to what these things cost them. There doesn't seem to be an incentive for the employer to find cost effective plans, just ones where they don't have to do work.

Also in regards to the quote, I'd like to see some numbers backing that claim up. It just hangs there in the middle of the article. I'll have to see if Teresa Ghilarducci has any papers backing up the claims she is making.

Numbers Man

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Re: Everyone Should Have Access to a 401K
« Reply #2 on: October 14, 2013, 03:34:15 PM »
As long as you're in fortune 500 corporate america the 401(k) plans are wonderful. You usually have many choices and are not restricted on contributing the max to the plan. But if you're with a small employer you don't have many good fund choices and your fees inside the plan are higher. And if you are making a good wage (known as highly compensated in government speak), the rules seem to limit your contribution to some puny amount since your company fails the means test or some similar sounding bullshit word. In other words, since the $25k a year factory workers aren't contributing to a 401(k) plan then the higher paid people that want to contribute to retirement instead of just hoping for social security aren't allowed to save the maximum.   http://www.401khelpcenter.com/mpower/feature_030702.html#.UlxijtK-pPo


matchewed

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Re: Everyone Should Have Access to a 401K
« Reply #3 on: October 14, 2013, 03:58:36 PM »
As long as you're in fortune 500 corporate america the 401(k) plans are wonderful. You usually have many choices and are not restricted on contributing the max to the plan. But if you're with a small employer you don't have many good fund choices and your fees inside the plan are higher. And if you are making a good wage (known as highly compensated in government speak), the rules seem to limit your contribution to some puny amount since your company fails the means test or some similar sounding bullshit word. In other words, since the $25k a year factory workers aren't contributing to a 401(k) plan then the higher paid people that want to contribute to retirement instead of just hoping for social security aren't allowed to save the maximum.   http://www.401khelpcenter.com/mpower/feature_030702.html#.UlxijtK-pPo

<----- Works in a factory. Our 401k participation is in the 80%. The largest group within our facility is the workers. Not a fortune 500 corporate america company. Highly compensated employee has a definition (here). And it is intended to resolve discrepancies between matching 4% on a person making a crapton versus 4% on your 25k a year factory worker. The compensation isn't equal, just the percentage of compensation. Pardon me if I don't feel sympathetic with you that there is a system in place to balance out compensation and aid in developing systems to create a solid retirement for a broader swath of employees.

Your broad generalizations seem rather pulled from a hat. If you're with a small employer (or big employer) you can get together with other employees and push to get better options. My company does it through a committee, all you need is somewhat educated people who understand the rudiments of finance. In the past two years we've gotten management to work with the company the 401k is with to provide lower cost funds, so they introduced two index funds, one S&P 500 and the other international.

 

oldtoyota

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Re: Everyone Should Have Access to a 401K
« Reply #4 on: October 14, 2013, 07:15:14 PM »
2. I don't totally agree. I think it can be tied to employer, it is a great way for employers to show or provide incentive for potential employees.

I'd like to explore this point a bit. I agree that it's a great way for employers to provide an incentive. Given that benefits seem to be drying up, I'll take it. At the same time, my concern is with people who do not have access to a 401k plan because they work for a company that doesn't provide one. For 3-4 years, I worked for a small company that had NO retirement plan for its 4 employees. If I had been able to sock away pre-tax dollars in a 401K, I'd be so much closer to FI. Even though I'm not in that boat any longer, I care about those who are.

As a result, I think 401ks should be independent of an employer since it seems a good chunk of employers do not offer that. Employers could still deposit a match; it just would not be in an account for which their employees are paying $300 or $500 or however much per year. Employees would save money this way.

I did some reading on this topic. It seems some powerful groups are against allowing Americans to have plans in their own name/accounts. Some companies would lose out on big fees...it's hard to say how much because the fees are paid from returns and it's not easy to find out how much the fees cost.






aj_yooper

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Re: Everyone Should Have Access to a 401K
« Reply #5 on: October 14, 2013, 08:31:01 PM »
If you made me Queen, I'd probably open up the Thrift Savings plan to everyone up to the old 401k maximum, if not higher. Employers could have a way to contribute to the employee's account if they knew their SSN. Make the default fund an age appropriate lifecycle one.

Yes, yes, yes.

beltim

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Re: Everyone Should Have Access to a 401K
« Reply #6 on: October 14, 2013, 08:36:29 PM »
Am I missing something or is the OP just looking for and arguing for IRAs?  They are taxed advantage retirement savings plans not tied to your employer.

matchewed

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Re: Everyone Should Have Access to a 401K
« Reply #7 on: October 14, 2013, 08:46:38 PM »
2. I don't totally agree. I think it can be tied to employer, it is a great way for employers to show or provide incentive for potential employees.

I'd like to explore this point a bit. I agree that it's a great way for employers to provide an incentive. Given that benefits seem to be drying up, I'll take it. At the same time, my concern is with people who do not have access to a 401k plan because they work for a company that doesn't provide one. For 3-4 years, I worked for a small company that had NO retirement plan for its 4 employees. If I had been able to sock away pre-tax dollars in a 401K, I'd be so much closer to FI. Even though I'm not in that boat any longer, I care about those who are.

As a result, I think 401ks should be independent of an employer since it seems a good chunk of employers do not offer that. Employers could still deposit a match; it just would not be in an account for which their employees are paying $300 or $500 or however much per year. Employees would save money this way.

I did some reading on this topic. It seems some powerful groups are against allowing Americans to have plans in their own name/accounts. Some companies would lose out on big fees...it's hard to say how much because the fees are paid from returns and it's not easy to find out how much the fees cost.

I'd have to know more about the percentage of employers who don't provide a 401k and what incentives there are for doing so. I'll admit I'm rather lax in this area.

I don't necessarily disagree automatically about the separation between pre-tax savings and employment, I just am not sure how to structure it for maximum usage. If it was separate from employment as you, serpentstooth, and aj_yooper have suggested what incentive could be put in place to have employers contribute as well? Employers who could afford that would be the same employers who could just offer more money, larger businesses with larger profits would dominate the field of potential employees (not that they don't today per se but whatev... we're crafting an alternative future here).

Am I missing something or is the OP just looking for and arguing for IRAs?  They are taxed advantage retirement savings plans not tied to your employer.

At a much lower cap for contributions and not just a little lower but a lot. Also oldtoyota is discussing how to involve employment as well, not just cutting them out of the picture, so how do you marry the two programs in a way which benefits individuals seeking retirement security?

Petunia 100

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Re: Everyone Should Have Access to a 401K
« Reply #8 on: October 14, 2013, 09:00:33 PM »
All we have to do is raise contribution limits for IRAs.  We could also allow employers to make contributions to employees' IRAs.   There, problem solved.

beltim

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Re: Everyone Should Have Access to a 401K
« Reply #9 on: October 14, 2013, 09:23:29 PM »
Am I missing something or is the OP just looking for and arguing for IRAs?  They are taxed advantage retirement savings plans not tied to your employer.

To which you can contribute a whopping $5500/annum, as opposed to $1750/annum in a 401k. That's the big difference.

Sure, but then the solution is easy. Just like petunia said, all we have to do is raise the limits on IRAs.

Will

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Re: Everyone Should Have Access to a 401K
« Reply #10 on: October 14, 2013, 10:52:21 PM »
Am I missing something or is the OP just looking for and arguing for IRAs?  They are taxed advantage retirement savings plans not tied to your employer.

To which you can contribute a whopping $5500/annum, as opposed to $1750/annum in a 401k. That's the big difference.

Sure, but then the solution is easy. Just like petunia said, all we have to do is raise the limits on IRAs.

And WHY are there limits anyway?  "We don't want people saving/investing too much!"  Really?

matchewed

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Re: Everyone Should Have Access to a 401K
« Reply #11 on: October 15, 2013, 04:53:29 AM »
Am I missing something or is the OP just looking for and arguing for IRAs?  They are taxed advantage retirement savings plans not tied to your employer.

To which you can contribute a whopping $5500/annum, as opposed to $1750/annum in a 401k. That's the big difference.

Sure, but then the solution is easy. Just like petunia said, all we have to do is raise the limits on IRAs.

And WHY are there limits anyway?  "We don't want people saving/investing too much!"  Really?

Because they're tax deferred. It's not in the interest of a government to give a vehicle for paying 0 taxes to everyone.

For all the people who say just let employers contribute to IRA's, what is the incentive for employers in an open system like that?

MKinVA

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Re: Everyone Should Have Access to a 401K
« Reply #12 on: October 15, 2013, 05:58:00 AM »
The limits for IRAs should be increased at least for people who don't have access to 401k at their work or who don't work at a traditional job. It's ridiculous that everyone says people aren't saving enough for retirement and then the limits are so low that you can't save, at least in a tax advantaged manner. And if you are married the combined limits are lower than for two singles combined. What's that about?

matchewed

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Re: Everyone Should Have Access to a 401K
« Reply #13 on: October 15, 2013, 06:11:02 AM »
The limits for IRAs should be increased at least for people who don't have access to 401k at their work or who don't work at a traditional job. It's ridiculous that everyone says people aren't saving enough for retirement and then the limits are so low that you can't save, at least in a tax advantaged manner. And if you are married the combined limits are lower than for two singles combined. What's that about?

How does the government verify that people have access to a 401k or not?

I'm not sure, perhaps something to do with the tax break you get for being married?

oldtoyota

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Re: Everyone Should Have Access to a 401K
« Reply #14 on: October 15, 2013, 06:42:32 AM »
Am I missing something or is the OP just looking for and arguing for IRAs?  They are taxed advantage retirement savings plans not tied to your employer.

To which you can contribute a whopping $5500/annum, as opposed to $1750/annum in a 401k. That's the big difference.

Sure, but then the solution is easy. Just like petunia said, all we have to do is raise the limits on IRAs.

You have a point here. I don't think the product would be an IRA anymore, because I would want a higher max (or no max) and the ability for employers to add a match.

Side note: My concern is companies would just stop matches altogether if the 401K product was removed from the systems they have with financial firms.

oldtoyota

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Re: Everyone Should Have Access to a 401K
« Reply #15 on: October 15, 2013, 06:44:32 AM »
The limits for IRAs should be increased at least for people who don't have access to 401k at their work or who don't work at a traditional job. It's ridiculous that everyone says people aren't saving enough for retirement and then the limits are so low that you can't save, at least in a tax advantaged manner. And if you are married the combined limits are lower than for two singles combined. What's that about?

How does the government verify that people have access to a 401k or not?


Couldn't the method be similar to verifying if people have health insurance or not? Don't tell me we have a country that can build red light cameras and drones and can't figure out who has a 401K? If they can't figure it out, it's because they do not want to figure it out.

oldtoyota

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Re: Everyone Should Have Access to a 401K
« Reply #16 on: October 15, 2013, 06:49:09 AM »
2. I don't totally agree. I think it can be tied to employer, it is a great way for employers to show or provide incentive for potential employees.

I'd like to explore this point a bit. I agree that it's a great way for employers to provide an incentive. Given that benefits seem to be drying up, I'll take it. At the same time, my concern is with people who do not have access to a 401k plan because they work for a company that doesn't provide one. For 3-4 years, I worked for a small company that had NO retirement plan for its 4 employees. If I had been able to sock away pre-tax dollars in a 401K, I'd be so much closer to FI. Even though I'm not in that boat any longer, I care about those who are.

As a result, I think 401ks should be independent of an employer since it seems a good chunk of employers do not offer that. Employers could still deposit a match; it just would not be in an account for which their employees are paying $300 or $500 or however much per year. Employees would save money this way.

I did some reading on this topic. It seems some powerful groups are against allowing Americans to have plans in their own name/accounts. Some companies would lose out on big fees...it's hard to say how much because the fees are paid from returns and it's not easy to find out how much the fees cost.

I've been out of college since 2009. Since then, I've had access to a 401k for...4 months. First I was unemployed, so no 401k. Then I got a job, and wasn't eligible for a year. The minute I was eligible, I started dumping money in like mad. A few months later, my husband got a job, and we relocated. I got another job, and the retirement option didn't kick in for a year. Before then, my husband got ANOTHER job, and we had to move AGAIN. I got a new job. 401k option after a year. Got laid off after 11 months. Now I'm unemployed and looking. And it seems like that's now standard, for employers not to offer 401ks to new employees until they've passed their anniversary date. I do have some self employment income now, so 100% of that will go into the solo 401k.

Which really stinks if you're a job-hopper in your twenties.

Yep. Exactly my point. I also had moves due to husband's job, lay off, etc. What is the solution for you? I am not sure, but I wonder if contributing to a taxable account (after maxing out your IRA) is the best option??



oldtoyota

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Re: Everyone Should Have Access to a 401K
« Reply #17 on: October 15, 2013, 06:52:02 AM »
Am I missing something or is the OP just looking for and arguing for IRAs?  They are taxed advantage retirement savings plans not tied to your employer.

To which you can contribute a whopping $5500/annum, as opposed to $1750/annum in a 401k. That's the big difference.

Sure, but then the solution is easy. Just like petunia said, all we have to do is raise the limits on IRAs.

And WHY are there limits anyway?  "We don't want people saving/investing too much!"  Really?

Because they're tax deferred. It's not in the interest of a government to give a vehicle for paying 0 taxes to everyone.

For all the people who say just let employers contribute to IRA's, what is the incentive for employers in an open system like that?

You ask good questions. I have some for you.

What is the employer's incentive now in the 401k system? Sincere question.

Do our employers make money from the fees charged by the third party company?

Regarding tax deferred money, the solution would appear to be easy. Make up to X dollars tax deferred and not the rest. This could be figured out.

matchewed

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Re: Everyone Should Have Access to a 401K
« Reply #18 on: October 15, 2013, 07:10:24 AM »
The limits for IRAs should be increased at least for people who don't have access to 401k at their work or who don't work at a traditional job. It's ridiculous that everyone says people aren't saving enough for retirement and then the limits are so low that you can't save, at least in a tax advantaged manner. And if you are married the combined limits are lower than for two singles combined. What's that about?

How does the government verify that people have access to a 401k or not?


Couldn't the method be similar to verifying if people have health insurance or not? Don't tell me we have a country that can build red light cameras and drones and can't figure out who has a 401K? If they can't figure it out, it's because they do not want to figure it out.

No offense but that isn't really an answer.

We can determine if people have health insurance from their employers. If we remove the employers from the equation it is much more difficult to verify on an individual level.

matchewed

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Re: Everyone Should Have Access to a 401K
« Reply #19 on: October 15, 2013, 07:36:37 AM »
Am I missing something or is the OP just looking for and arguing for IRAs?  They are taxed advantage retirement savings plans not tied to your employer.

To which you can contribute a whopping $5500/annum, as opposed to $1750/annum in a 401k. That's the big difference.

Sure, but then the solution is easy. Just like petunia said, all we have to do is raise the limits on IRAs.

And WHY are there limits anyway?  "We don't want people saving/investing too much!"  Really?

Because they're tax deferred. It's not in the interest of a government to give a vehicle for paying 0 taxes to everyone.

For all the people who say just let employers contribute to IRA's, what is the incentive for employers in an open system like that?

You ask good questions. I have some for you.

What is the employer's incentive now in the 401k system? Sincere question.

Do our employers make money from the fees charged by the third party company?

Regarding tax deferred money, the solution would appear to be easy. Make up to X dollars tax deferred and not the rest. This could be figured out.

"Employer contributions are deductible on the employer’s federal income tax return to the extent that the contributions do not exceed the limitations described in section 404 of the Internal Revenue Code. Refer to Publication 560, Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans), for more information about deduction limitations." Source

I don't think employers make money from fees, they can try to reduce their costs associated with maintaining a 401k. A description of what kinds of fees are out there

Petunia 100

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Re: Everyone Should Have Access to a 401K
« Reply #20 on: October 15, 2013, 09:45:40 AM »

For all the people who say just let employers contribute to IRA's, what is the incentive for employers in an open system like that?

The same incentive which exists for offering matching 401k contributions now.  It makes the compensation package more attractive.

smalllife

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Re: Everyone Should Have Access to a 401K
« Reply #21 on: October 15, 2013, 09:48:51 AM »
I think a similar mechanism to HSAs could be set up.  Right now you can buy an HSA plan on your own or get it through an employer.  If your employer does not offer one you contribute with after-tax dollars (since there is no payroll deduction) and the difference is reconciled when you file your taxes.  Why not offer the same for 401ks?  If your employer doesn't offer a plan (or you want to do your own), simply open one up at Vanguard, Fidelity, wherever and contribute up to the max?  You put in post tax dollars but your AGI gets reduced through the appropriate tax form produced at the end of the year.   The process is already in place and there is no risk to the government as you would have to file your taxes in order to get the tax benefits.

Petunia 100

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Re: Everyone Should Have Access to a 401K
« Reply #22 on: October 15, 2013, 09:49:44 AM »
The limits for IRAs should be increased at least for people who don't have access to 401k at their work or who don't work at a traditional job. It's ridiculous that everyone says people aren't saving enough for retirement and then the limits are so low that you can't save, at least in a tax advantaged manner. And if you are married the combined limits are lower than for two singles combined. What's that about?

How does the government verify that people have access to a 401k or not?


Couldn't the method be similar to verifying if people have health insurance or not? Don't tell me we have a country that can build red light cameras and drones and can't figure out who has a 401K? If they can't figure it out, it's because they do not want to figure it out.

No offense but that isn't really an answer.

We can determine if people have health insurance from their employers. If we remove the employers from the equation it is much more difficult to verify on an individual level.

Companies already do report this.   On your W-2 is a little box labeled "Retirement Plan Participant".  If you are eligible to participate in a 401k or other company sponsored plan, that box has an "X" in it.  If you are not eligible to participate in a 401k or other company sponsored plan, that box is left unmarked.

Petunia 100

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Re: Everyone Should Have Access to a 401K
« Reply #23 on: October 15, 2013, 10:03:24 AM »
I think a similar mechanism to HSAs could be set up.  Right now you can buy an HSA plan on your own or get it through an employer.  If your employer does not offer one you contribute with after-tax dollars (since there is no payroll deduction) and the difference is reconciled when you file your taxes.  Why not offer the same for 401ks?  If your employer doesn't offer a plan (or you want to do your own), simply open one up at Vanguard, Fidelity, wherever and contribute up to the max?  You put in post tax dollars but your AGI gets reduced through the appropriate tax form produced at the end of the year.   The process is already in place and there is no risk to the government as you would have to file your taxes in order to get the tax benefits.

The mechanism you're describing already exists.  It's called a traditional IRA.

smalllife

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Re: Everyone Should Have Access to a 401K
« Reply #24 on: October 15, 2013, 10:32:16 AM »
I think a similar mechanism to HSAs could be set up.  Right now you can buy an HSA plan on your own or get it through an employer.  If your employer does not offer one you contribute with after-tax dollars (since there is no payroll deduction) and the difference is reconciled when you file your taxes.  Why not offer the same for 401ks?  If your employer doesn't offer a plan (or you want to do your own), simply open one up at Vanguard, Fidelity, wherever and contribute up to the max?  You put in post tax dollars but your AGI gets reduced through the appropriate tax form produced at the end of the year.   The process is already in place and there is no risk to the government as you would have to file your taxes in order to get the tax benefits.

The mechanism you're describing already exists.  It's called a traditional IRA.

Except that you can't contribute more than a combined $5,500 into Roth IRA and Traditional IRA under age 55.  That is not the same thing as the 401k $17,500 in addition to the Roth IRA.   Why limit personal contributions to the Traditional IRA instead of allowing contributions to your 401k outside of payroll deductions?  If the mechanism already exists (I used the HSA as an example, which is the same concept as the get your taxes back when you file with the Traditional IRA), why not use it for the 401k?

oldtoyota

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Re: Everyone Should Have Access to a 401K
« Reply #25 on: October 15, 2013, 11:41:03 AM »
The limits for IRAs should be increased at least for people who don't have access to 401k at their work or who don't work at a traditional job. It's ridiculous that everyone says people aren't saving enough for retirement and then the limits are so low that you can't save, at least in a tax advantaged manner. And if you are married the combined limits are lower than for two singles combined. What's that about?

How does the government verify that people have access to a 401k or not?


Couldn't the method be similar to verifying if people have health insurance or not? Don't tell me we have a country that can build red light cameras and drones and can't figure out who has a 401K? If they can't figure it out, it's because they do not want to figure it out.

No offense but that isn't really an answer.

We can determine if people have health insurance from their employers. If we remove the employers from the equation it is much more difficult to verify on an individual level.

No offense taken. Now, I see that you were probably asking how would the gov go about it today/now when I thought you were asking how it would ever be possible.


Undecided

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Re: Everyone Should Have Access to a 401K
« Reply #26 on: October 15, 2013, 11:48:00 AM »
Am I missing something or is the OP just looking for and arguing for IRAs?  They are taxed advantage retirement savings plans not tied to your employer.

To which you can contribute a whopping $5500/annum, as opposed to $1750/annum in a 401k. That's the big difference.

Sure, but then the solution is easy. Just like petunia said, all we have to do is raise the limits on IRAs.

You have a point here. I don't think the product would be an IRA anymore, because I would want a higher max (or no max) and the ability for employers to add a match.

Side note: My concern is companies would just stop matches altogether if the 401K product was removed from the systems they have with financial firms.

Leaving 401(k)s in place and raising the IRA limit (and making deductibility independent of 401(k) availability) would leave employers with the same reasons and mechanisms to make contributions on the 401(k) side, while providing employees with more employment-independent deferred investment options on the IRA side. Seems relatively simply. Could fiddle with a total contribution limit that applies across both accounts.

Petunia 100

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Re: Everyone Should Have Access to a 401K
« Reply #27 on: October 15, 2013, 11:52:42 AM »
I think a similar mechanism to HSAs could be set up.  Right now you can buy an HSA plan on your own or get it through an employer.  If your employer does not offer one you contribute with after-tax dollars (since there is no payroll deduction) and the difference is reconciled when you file your taxes.  Why not offer the same for 401ks?  If your employer doesn't offer a plan (or you want to do your own), simply open one up at Vanguard, Fidelity, wherever and contribute up to the max?  You put in post tax dollars but your AGI gets reduced through the appropriate tax form produced at the end of the year.   The process is already in place and there is no risk to the government as you would have to file your taxes in order to get the tax benefits.

The mechanism you're describing already exists.  It's called a traditional IRA.

Except that you can't contribute more than a combined $5,500 into Roth IRA and Traditional IRA under age 55.  That is not the same thing as the 401k $17,500 in addition to the Roth IRA.   Why limit personal contributions to the Traditional IRA instead of allowing contributions to your 401k outside of payroll deductions?  If the mechanism already exists (I used the HSA as an example, which is the same concept as the get your taxes back when you file with the Traditional IRA), why not use it for the 401k?

What I'm saying is we don't need to change the 401k.   All we need to do is increase IRA limits.  Employers could be allowed to contribute to IRAs.  Custodians report your contributions annually, all that would be needed is an additional line on the form and they could report what your employer contributed as well.  Easy-peasy.   We could end the 401k, its compliance rules, and its high cost (they are all high cost, either the employer pays or the employees do).




smalllife

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Re: Everyone Should Have Access to a 401K
« Reply #28 on: October 15, 2013, 12:02:18 PM »
What I'm saying is we don't need to change the 401k.   All we need to do is increase IRA limits.  Employers could be allowed to contribute to IRAs.  Custodians report your contributions annually, all that would be needed is an additional line on the form and they could report what your employer contributed as well.  Easy-peasy.   We could end the 401k, its compliance rules, and its high cost (they are all high cost, either the employer pays or the employees do).

So same or similar end, different means.  I would be on board with your suggestion as well. 

beltim

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Re: Everyone Should Have Access to a 401K
« Reply #29 on: October 15, 2013, 04:37:04 PM »
It would be even simpler if you didn't allow employers to contribute to IRAs.  Then everyone could compare job offers with a single line: total compensation.  No more worrying about different levels of benefits, or any of a million potential "what ifs."

oldtoyota

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Re: Everyone Should Have Access to a 401K
« Reply #30 on: October 15, 2013, 05:43:12 PM »
It would be even simpler if you didn't allow employers to contribute to IRAs.  Then everyone could compare job offers with a single line: total compensation.  No more worrying about different levels of benefits, or any of a million potential "what ifs."

Ain't that the truth. It's nearly impossible to compare jobs--or to know if you should bother applying in the first place--when orgs are not up front about their benefits.

kyleaaa

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Re: Everyone Should Have Access to a 401K
« Reply #31 on: October 16, 2013, 01:54:07 PM »
Totally agree. Tying retirement plans to employers is a disaster, as we've already seen. Just let me open my own 401k anywhere and tell my employer to direct deposit x% of my paycheck into it every month, just like they do with my paycheck currently. Simple, transparent, and I can actually shop around for a better deal.

ZiziPB

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Re: Everyone Should Have Access to a 401K
« Reply #32 on: October 16, 2013, 03:01:10 PM »
I think the participation rate would be a lot lower overall if it was done strictly on individual basis.  Under my employer's current plan you are automatically enrolled at some level, whether you want it or not.  And even without that, it is such an easy process: all you need to decide is the percentage you want to contribute.  If you don't direct your investments, you get automatically put in a Vanguard Target Retirement Fund selected based on your age.  This ensures a much broader participation rate.  I suspect a lot of average American would not bother with an IRA, even if it offered much higher tax benefits....

Will

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Re: Everyone Should Have Access to a 401K
« Reply #33 on: October 16, 2013, 08:17:09 PM »
I think the participation rate would be a lot lower overall if it was done strictly on individual basis.  Under my employer's current plan you are automatically enrolled at some level, whether you want it or not.  And even without that, it is such an easy process: all you need to decide is the percentage you want to contribute.  If you don't direct your investments, you get automatically put in a Vanguard Target Retirement Fund selected based on your age.  This ensures a much broader participation rate.  I suspect a lot of average American would not bother with an IRA, even if it offered much higher tax benefits....

Maybe it could be set up in such a way where if you don't have something set up on your own it would default to a standard plan?

michaelrecycles

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Re: Everyone Should Have Access to a 401K
« Reply #34 on: October 17, 2013, 01:36:39 AM »
I think the participation rate would be a lot lower overall if it was done strictly on individual basis.  Under my employer's current plan you are automatically enrolled at some level, whether you want it or not.  And even without that, it is such an easy process: all you need to decide is the percentage you want to contribute.  If you don't direct your investments, you get automatically put in a Vanguard Target Retirement Fund selected based on your age.  This ensures a much broader participation rate.  I suspect a lot of average American would not bother with an IRA, even if it offered much higher tax benefits....

I agree participation rate would be a challenge in an individual-directed system. However, that is because of the inadequate financial education most people currently receive. It does not mean the current structure is optimal.

oldtoyota

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Re: Everyone Should Have Access to a 401K
« Reply #35 on: October 17, 2013, 07:19:35 AM »
In Canada, we do.

Our "401k" is called an "RRSP" and you can open one (or a dozen, hundred...) by walking into the financial institution of your choice and filling out the forms. There are different types - cash accounts, investment holding accounts etc.

Our version of the "Roth IRA" is called a "TFSA" and, like the RRSP, you can open one or many yourself.

So, yeah, while I lament the lack of certain investment schemes up here in Canada (I wish Vanguard would offer their index mutual funds to Canadians but I gather Canadian Securities Law makes that difficult so we're stuck with their ETFs), I'm extremely thankful for self-managed RRSP and TFSA.

Thanks for sharing this. We have proof a version of the "manage-it-yourself" plan functions.

Petunia 100

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Re: Everyone Should Have Access to a 401K
« Reply #36 on: October 17, 2013, 12:53:13 PM »
I think the participation rate would be a lot lower overall if it was done strictly on individual basis.  Under my employer's current plan you are automatically enrolled at some level, whether you want it or not.  And even without that, it is such an easy process: all you need to decide is the percentage you want to contribute.  If you don't direct your investments, you get automatically put in a Vanguard Target Retirement Fund selected based on your age.  This ensures a much broader participation rate.  I suspect a lot of average American would not bother with an IRA, even if it offered much higher tax benefits....

Sadly, this is true.   Most will not participate unless you hold their hand and walk them through the process.   

simonsez

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Re: Everyone Should Have Access to a 401K
« Reply #37 on: October 18, 2013, 08:59:54 AM »
We could end the 401k, its compliance rules, and its high cost (they are all high cost, either the employer pays or the employees do).

Are you implying that non-401k (or at least some) investment vehicles do not have high costs?  If so, what are they and how do they (and not the 401k) circumvent the costly administrative costs?

What would you consider not a high cost?  My 401k/Roth 401k type accounts cost about 2.7 basis points* or 27 cents for every $1000 invested.  I consider this to not be a high cost and very acceptable.  I also don't know of non-401k investment vehicles that do better with regard to fees/expenses.  Did you mean all non-TSP 401ks when you said 'they are all high cost' or am I misinformed about what the true administrative fees are and that my employer is secretly paying the "true" high fees of my 401k?

*-Yes, this is the TSP.

And to the others who mentioned TSP, yes, some investment vehicle which could at least mimic the function of the TSP (mostly index funds operated for millions to drive down the administrative costs) and be available to the public would be great.  This could be as simple as using Vanguard/Fidelity index funds in an environment with higher IRA limits or it could be something else, but yes, something should exist. 

I will say that I don't feel bad for those that fail to take advantage of tax-deferred plans to at least some degree or those who would not take advantage if they had access.  At some point you have to take personal fiscal responsibility and carve your own path.  Read a book, search the web, ask a friend, be proactive not reactive about learning finance topics.  Much of this can be done for free (e.g. library, this website, etc.)!  I feel that's they way an adult should behave with regard to any topic that could affect his or her life:  do your homework and be as prepared as you can for whatever life throws you.  Not to get off topic hopefully, but for those that need more hand-holding, I guess there is S.S. and the hope that they realize they need to be more frugal than most in their later years.  I say this because it seems (I could be wrong) at least on this forum that most folks plan for retirement without S.S. coming into the thought process and view it as a pleasant bonus.  But hey, maybe people weren't deferring their dollars because they couldn't pass up a high ROI in the present and had to capitalize!

Petunia 100

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Re: Everyone Should Have Access to a 401K
« Reply #38 on: October 18, 2013, 10:40:55 AM »
I'm saying that 401k plans are expensive to administer.   And since most administrators are for-profit companies, they don't do it at cost.  If an employer is not directly paying the administrative costs,  then the employees are indirectly paying them.

The TSP is not comparable to 401k plans, since the costs of administering the TSP are paid from tax dollars.   And yes, I too would consider 2.7 basis points quite acceptable. :)

I am also in a fortunate position when it comes to my company retirement plan.  My employer has a Simple IRA instead of a 401k.  They had established it with a high-cost custodian, but allowed me to establish an additional one with Vanguard.  (Just as an individual is allowed to establish IRAs with as many custodians as they choose, a company is allowed to establish Simple IRAs with as many custodians as it chooses).  A Simple IRA does not have nearly the compliance regulations which a 401k plan has.  The annual cost of the plan to the company with Vanguard is $0.  Because I have at least 50k invested with Vanguard, my annual fee is $0.  Vanguard does not allow Admiral shares in Simple IRAs, so I am forever saddled with the higher cost Investor shares, but those are very cheap by most standards.  (Not TSP standards, but most standards).

simonsez

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Re: Everyone Should Have Access to a 401K
« Reply #39 on: October 18, 2013, 10:45:50 AM »
costs of administering the TSP are paid from tax dollars

Okay, so do you think something similar should be set up for all people to have access to with a little help in administration from the federal government?

simonsez

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Re: Everyone Should Have Access to a 401K
« Reply #40 on: October 18, 2013, 10:55:06 AM »
Also, do you have a link to how much of TSP administration is funded from outside sources, i.e. those NOT coming from the 2.7 basis points?

Rough math side note:  TSP has over $350 billion invested.  If we multiply that times the 2.7 basis points, that gives us $94.5 million per year.  With the FRTIB (who manages TSP) at roughly 140 employees (of which I would assume are well educated for the most part and make decent federal salaries), this would average $675,000 per employee.  Now, I realize there are significant technology and brick and mortar costs that can add up but I can't imagine that the portion (if any) which is required by taxpayers to help keep TSP expense ratios low for its 4+ million participants can be that much but I've been known to be wrong countless times.

oldtoyota

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Re: Everyone Should Have Access to a 401K
« Reply #41 on: October 18, 2013, 10:59:19 AM »
I think the participation rate would be a lot lower overall if it was done strictly on individual basis.  Under my employer's current plan you are automatically enrolled at some level, whether you want it or not.  And even without that, it is such an easy process: all you need to decide is the percentage you want to contribute.  If you don't direct your investments, you get automatically put in a Vanguard Target Retirement Fund selected based on your age.  This ensures a much broader participation rate.  I suspect a lot of average American would not bother with an IRA, even if it offered much higher tax benefits....

Sadly, this is true.   Most will not participate unless you hold their hand and walk them through the process.

I think this is true even with employer plans though.

beltim

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Re: Everyone Should Have Access to a 401K
« Reply #42 on: October 18, 2013, 11:01:40 AM »
costs of administering the TSP are paid from tax dollars

Okay, so do you think something similar should be set up for all people to have access to with a little help in administration from the federal government?

This isn't true.  Tax dollars pay salaries and benefits, yes, but the reason tsp expenses are so low is economies of scale, not subsidies.

Petunia 100

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Re: Everyone Should Have Access to a 401K
« Reply #43 on: October 18, 2013, 11:50:45 AM »
costs of administering the TSP are paid from tax dollars

Okay, so do you think something similar should be set up for all people to have access to with a little help in administration from the federal government?

I wouldn't object, but I don't feel it is necessary.  Anyone who cares about investment costs and wants to keep them low can do so in their IRAs and taxable accounts.  The problem people run into is the low contribution limits in IRAs, the inability of some to deduct traditional IRA contributions, and the fact that if they want their match, they must contribute to their employer plan.

Petunia 100

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Re: Everyone Should Have Access to a 401K
« Reply #44 on: October 18, 2013, 12:05:16 PM »

This isn't true.  Tax dollars pay salaries and benefits, yes, but the reason tsp expenses are so low is economies of scale, not subsidies.

According to the ICI, it is true.

As testimony by the GAO makes clear, the TSP is a unique arrangement that cannot fairly be compared
with or duplicated by 401(k) plans.2 The TSP’s low reported costs for investment management and plan
administration reflect the facts that the plan is unusually large, only covers employees of a single employer,
and enjoys broad relief from the regulations and compliance costs that apply to private-sector plans.3 In
addition, other federal agencies perform some portion of TSP’s administrative work, and these costs are
subsidized by U.S. taxpayers.
The extent of these hidden costs are unknown and are not reflected in the TSP
fee structure.


http://www.ici.org/pdf/ppr_tsp.pdf

beltim

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Re: Everyone Should Have Access to a 401K
« Reply #45 on: October 18, 2013, 12:07:45 PM »
How is that not a normal part of the benefits package from an employer?  Do you consider the costs of IBM managing its 401(k) plan to be paid by its customers?

Petunia 100

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Re: Everyone Should Have Access to a 401K
« Reply #46 on: October 18, 2013, 12:27:36 PM »
How is that not a normal part of the benefits package from an employer?  Do you consider the costs of IBM managing its 401(k) plan to be paid by its customers?

I'm not saying it's improper that tax dollars subsidize the TSP; only that it makes the TSP costs incomparable to 401k plan costs.

beltim

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Re: Everyone Should Have Access to a 401K
« Reply #47 on: October 18, 2013, 12:47:19 PM »
How is that not a normal part of the benefits package from an employer?  Do you consider the costs of IBM managing its 401(k) plan to be paid by its customers?

I'm not saying it's improper that tax dollars subsidize the TSP; only that it makes the TSP costs incomparable to 401k plan costs.

Right, I understand what you're saying, I just don't the reasoning.  Aren't costs to administer the plan part of the expense of offering that benefit to employees?  In other words, what's the difference between IBM paying that cost for its employees and the government paying that cost for its employees?

Petunia 100

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Re: Everyone Should Have Access to a 401K
« Reply #48 on: October 18, 2013, 01:29:14 PM »

Right, I understand what you're saying, I just don't the reasoning.  Aren't costs to administer the plan part of the expense of offering that benefit to employees?  In other words, what's the difference between IBM paying that cost for its employees and the government paying that cost for its employees?

Oh, gotcha.  Since an IRA doesn't have the compliance rules a 401k plan has, we can eliminate the cost of compliance by going the IRA route.  No one has to pay.

Earlier, I said employers should be allowed to contribute to employee IRAs.   Now that I have reflected some more, I realize that will not work.  Employers would still have to show somehow that they were treating all employees fairly.  We are right back to ERISA compliance.

Earlier, you said that it would be better if no employer matching was allowed so that compensation could be compared more easily.   I think you are right, it would be better.  Instead of offering 50k salary + a 3% match,  the offer would be 51.5k salary. 

TSR Capital

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Re: Everyone Should Have Access to a 401K
« Reply #49 on: October 21, 2013, 08:52:50 AM »
I disagree with point 1.  I don't think that tax deferred retirement savings plans such as 401k/IRA should exist.  Income and capital gains taxes should be kept reasonably low.  I don't think that saving for retirement or any other purpose should get special tax treatment.

If such plans exist, then I agree with point 2.