Some economists see need for automatic 401(k) plans

[Rose Siding]

WASHINGTON - Although President Bush's proposal of Social Security private accounts has galvanized opposition from Democrats and politically powerful retiree organizations, all sides agree that Americans need to save more for retirement.

Bush and some Republicans in Congress say Social Security investment accounts will increase savings. But others counter that retirement income can be boosted without altering Social Security. One such proposal on the table is making enrollment in workplace 401(k) plans automatic.
.....
Researchers at the University of Pennsylvania's Wharton School estimate that only 13 percent of new workers earning less than $20,000 sign up for such savings plans. Gale argues that if these workers were automatically enrolled, it would help them build better retirement nest eggs.
.....
The Retirement Security Project is not alone in calling for an expansion of 401(k) coverage. William Novelli, chief executive of AARP and a leading critic of Bush's Social Security plan, said in a recent speech in Washington that if new employees of companies with retirement savings plans were "automatically enrolled and had to make a conscious decision to opt out, savings would increase dramatically."

http://www.chron.com/cs/CDA/ssistory.mpl/business/3114189

Please explain to me how someone earning less than 20K, with rising gas/energy and health care prices can afford to save for retirement and still keep milk in the house?

[LoZoccolo]

1. That's a good question, but...

...I still think the idea of at least expanding 401(k)s is a good idea, especially if it deflates Bush*'s rhetoric about replacing Social Security with a privatized plan.

[Rose Siding]

6. I really can't disagree

And it may involve enough of a windfall for the banking industry to keep them at bay -hell, suppose they were overshooting this very target all along.

A better plan is raising the cap on payroll taxes for high earners, imo. -but there's no money for campaign contributors in that!

[lostinacause]

18. The high earners already pay far more then they recieve and

derive very little income from the program. There contribution acts as nothing more then a tax. The problem with social security is that everyone new that the population demographics would be this way and no one did anything to solve the problem.

[ret5hd]

19. those poor poor rich people...

how i pity them...having to pay "taxes" to keep the truly poor and elderly from revolting against the greed of the rich, storming the bastille and hanging them.

SS is an insurance program...it insures that none have to starve during their twilight years AND insures that the rich get to live...pretty small price to pay, huh?

[lostinacause]

28. Social security is a transfer program that pretends to be a user fee.

Calling it insurance is misleading. For a select few it acts as an insurance policy would.

Regardless blaming the rich for the problems that people face doesn't get us any closer to a solution. It is simple to blame the people who have what we don't for our failure and demand that they give it to us, however in most cases it is a substandard way to solve the problem. You have to look no further then the communist experiment in Russia to see this.

[ret5hd]

34. again, those poor poor rich people...

it's not their fault everyone else is stupid and makes bad decisions.

call it a tax, call it insurance, call it your ass...programs like this are what keeps the plebes from killing the rich. Let 'em quit...I dare 'em. Double dog dare.

[lostinacause]

38. There is a big difference between a tax and a user fee (insurance).

People should really be able to understand these kinds of things before voting. This is one of the problems with modern democracies.

There are also very negative implications of the 'if you don't like it, kill someone' attitude that seems to be far too prevalent in America.

[Rose Siding]

21. Funny

:D

[lostinacause]

42. Do a simple cost-benefit analysis and you will see.

[w4rma]

23. They recieve ***alot*** from the program, indirectly. (nt)

[lostinacause]

26. What do you suppose these indirect benefits are?

I'm quite skeptical that the benefits even come close to the costs as it is now.

[Trillo]

30. Corporate welfare. nt

[lostinacause]

37. Meaning?

[mbperrin]

36. You couldn't be more wrong.

At the current cap of $90,000, the maximum contribution would be $5500 per year. This person will draw a benefit of $1939 per MONTH, meaning that they get back 4 years every year. If the cap had been $90,000 for the past 40 years, they'd get it all back in 10. But most years, the cap has been far lower. They get previous years back sooner, because previous limits were as low as 6.2% of $3,000 for a total YEARLY tax of $182, which will yield the same $1939 per month, which means each months of benefits makes back more than 10 years of those contributions. Most people will get back all they paid in in about 30 months, then they're in the plus.

Like all government programs, the richer you are, the more you get.
Poor people with kids get food stamps, which helps them to eat today. The food stamps end up in large agricultural corporations as they work their way up the chain of sales and profits. These profits end up as even more land holdings permanently for wealthy companies. HUD housing benefits cannot be used to buy a home for the recipients. They must rent. Those payments end up as mortgage payments for landlords to help THEM acquire more property permanently. You get the gist: temporary help programs end up as permanent assets for the wealthier, propertied class.

Go to:http://ssa-custhelp.ssa.gov
and search for "maximum social security benefit" for the numbers on caps and benefits.

Remember: all American Presidents were millionaires when elected, except 2: Truman and Clinton. They all left office as millionaires except 1: Truman. Coincidence? Think not.

[lostinacause]

41. Thank you for the numbers

I did a little number crunching myself and found that if we assume that anyone with effective investments can easily get an average of 5 percent real return and assuming that the real values of the maximum and the payment remain similar, I calculated the net present value after 45 years to be -0.8 million from that point on the present value decreases further reaching -1.0 million in the fifth year of retirement. That means the NET COST (Cost - Benefits) to an individual making over 90,000 a year is 1 million 2005 dollars.

(This is using standard cost benefit analysis. Your analysis did not take into account the time value of money or the opportunity cost of money)

[Lydia Leftcoast]

45. That could be said of any money spent on anything

If rich people bought a house that cost $100,000 than the biggest one they could afford, they could invest that money instead and make out even better.

The point is not how well the rich people do on a personal level. It's how well they contribute as members of society to the current livelihood of the currnet retirees.

Under a pure savings plan (no SS), the rich would make out like bandits, and the poor would exhaust their savings before they died.

[lostinacause]

47. You would assume that the benefit they received from a purchase

would be equal to or greater then they amount they pay. If the benefit was less then they would not pay it. Most transactions that occur do not have negative perceived benefits. Many government programs do. (This is the appeal of neoclassical capitalism)

Regarding the second point; do you believe that the cost of a program should be taken into account when taking into account the choice of actions to be taken?

[Lydia Leftcoast]

48. Only if you're cost-driven across the board, which this society is not

Money is no object when it comes to funding big shiny weapons for the military or running an unnecessary war, but somehow, there's "no money" for SS or other socially beneficial programs.

[lostinacause]

53. I agree with you

America spends too much money on defense. Even going with the premise that an Iraq war could have been beneficiary there are still many decisions that could have been made differently to save money and lives.

(I have no issues with the transfer programs from the wealth to the poor. I do believe that the losses should be kept as small as possible and that the money doesn’t necessarily have to come from the wealthy.)

[mbperrin]

62. Better rework those numbers a bit.

45 years ago, the max contribution would have been $186. At 5%, this doubles every 14 years by the rule of 70. This would be around $1496 at the 45 year mark. MONTHLY benefit of over $1900 is greater than that in the FIRST month! Take the second year of max and so on and come up to the present, where you find $5500 as the max benefit in the last 4 years. 5% for 4 years would result in about $6800 or so, recoverable in less than 4 months at $1900+ per month. Work it out backwards, and I think you'll find that actual contribution yield out a good bit better than the 5% you can get, IF you can get it. Average yield in stocks since the Civil War actually works out to a tad over 3%. The last five years are essentially flat or negative, so that 5% would look great to a lotta people.

Thanks!

[lostinacause]

65. Fair enough.

Is the 3% real or nominal?

[KittyWampus]

43. double post

[KittyWampus]

44. High Earners Benefit From Low Wage Earners Who Mow Their Lawns,

clean their toilets, assemble their clothing, grow their food, pave the roads they drive on, put out their fires, etc. etc. etc.

All those low wage earners will NOT be able to save for retirement while Mr. CEO makes 400x what the little guy makes.

You have basically given the "Walmart Defense" and fail to realise that Walmart's low wages and refusal to forgo corporate profits for the CEO's and larger investors ends up draining tax dollars as its employees need to get food stamps just to eat.

[lostinacause]

50. Low wage earners benefit from high wage earners too.

America is currently in a stage of adjusting to globalism so the benefits appear to be losses. You can rest assured that the cost of a traditional liberal response to wellbeing issues are going to have a much higher cost then they did in the past. This means, of course, that more thought will have to go into pursuing wellbeing through alternative measures.

[ldf]

51. currently adjusting to globalism..

don't you mean having our jobs outsourced for pennies on the dollar so the ceo's, through layoffs, can reap even more ridiculous incomes/benefits/freebies/giveaways/andagoldenparachute, so we workers will have to think a lot more creatively to pursue wellbeing, like, i don't know, maybe eating, and paying for an occasional visit to the doctor.

that leaves a hell of a lot for us to stash away for our wellbeing when we are too OLD to work.

me thinks you are on the wrong board with this crap.

[lostinacause]

55. How about you tell me what you would suggest be done about globalism.

Chances are your solution has a few wholes in it. They will, however, out do the conservative responses; reducing the minimum wage and relaxing pollution controls. They are laughable, "let’s reduce our wages to two cents an hour so we can have a job" and "let’s reduce pollution controls so people’s quality of life is affected by pollution instead of a lack of job". They are not solutions but according to them "the market is always right" ;-). Anyways your suggestion?!?

[KittyWampus]

52. Only If You Think It's Acceptable For CEO's To Make 400x Average Salary

[Kimber Scott]

56. Social security checks are based on your earnings. Nobody pays more

than they receive. Most people pay a lot less. High earners only pay tax on the first 90k and the checks they receive in retirement are considerably more than someone who worked for minimum wage all their life, or worked little at all.

The "problem" with SS tax is the employers are mandated to pay 1/2 of the 15% required, or 7.5%. How nice it would be for them to switch that to mandatory 401k contributions, or privatization, to pump up the stock market and them off the hook for the 7.5%. Oh, and when you say the employers usually match a vested employees funds, tell that to the airline pensioners, or other pensioners around the country who lose their pensions when their companies go bankrupt. These retirees are struggling to keep their homes and food on the table while their former CEOs are floating comfortably on their multi-million dollar golden parachutes. If these companies want more of our money, they need to earn it, not steal it. Bottom line.

[lostinacause]

57. I hate to break it to you, but because of how easy it is to

relocate to a foreign country you end up paying incurring most tax burden. (Take my word on this - it is basic economic theory but is cumbersome to explain).

The rest of what you point out here has less to do with Social Security and more to do corporate regulation.

[Kimber Scott]

59. Who's relocating? And who's regulating?

Point.

[lostinacause]

60. company relocating - government regulationg

The point of the burden of taxes is that someone more people are worse off because of the program then if the tax burden was split the same way the incidence of the tax was.

The point of the regulation comment is was that I was not sure how your statement was relevant.

[mbperrin]

66. Cure the relocation by charging a tax on assets before they leave

the country. They made it here - they need to pay the cover charge! Our infrastructure made it possible, so if you opt out, pay what you owe, just like any other game.

The tax would be sufficient to recover all their past unamortized usage of the country, as well as something to cover goodwill.

I'd personally favor 95% plus, but that just makes me smile to think of it! ;)

It's a game, and we actually could set the rules, if we'd quit letting ourselves think that money is brains! (Most of it's inherited, so...)

[lostinacause]

67. Beyond the fact that it is no party can win an election with this strategy

there are a list of drawbacks
1) Companies that may have only partially outsourced may go into bankruptcy
2) It would be a massive hindrance to foreign investment
3) tariffs would likely be placed on American goods
4) companies would find a way around it or move before they aquired a large amount of assets and find other ways to get around it.

[Kimber Scott]

68. So what you're saying is no matter what the rich and the corporations will

always get out of paying their fair share? Sounds like something Bush said a while back.

[lostinacause]

69. Because of the nature of trade it is hard to create a system that

restricts trade which is not harmful to the economy in a global economy.

[Desertrose]

2. Yeah, I 'd really love an answer to that too, RoseSiding

If a person is having to make a choice between paying the heat or the electric bill...or groceries, how in the world can they save enough to retire when they can't even afford to LIVE now??

[Frances]

4. The person would have to declare bankruptcy

If a person declares bakruptcy under the new law, what would happen to his 401K plan?

[Desertrose]

8. How would bankruptcy help retirement??

I can't see how that would improve the situation.....

They may not be in debt but just not have enough income tosave any......

[frankly_fedup2]

32. They cannot touch it. They can only take it if you have had to

remove some of it to help get by during the Bankruptcy.

100% sure because we have been there. We took out $7000 to help over the the period of time I was waiting on my disability. Even though that money came from our 401K, the judge made a ruling (took him a while), stating that the creditors could have what money was removed from the 401K; however, the money in the retirement account could not be touched. Also, if you have equity in your house, if you don't try to do the second mortgage thing, the court will. So try that option first, or they will take your house if you have equity in it. We did not have enough equity left over a second mortgage in 1999 so they couldn't take our house. We had to give them a list of everything that was in our house (down to the number of lamps). This was B4 the laws changed. We filed a chapter 7 because they penilize you for 10 years. A chapter 13 (where you try to work out something with the creditors and make payments (you are still penilized with bad credit for 10 years). It did not make sense to continue to struggle when our credit was going to be bad for 10 years as well).

We had to go that route because I became disabled. I made $35,000+ a year and then suddenly when I got sick, we only had one income then, which was my husbands. We were doing okay for a while but we were robbing from peter to pay paul. Plus, it took 16 months before I got my back pay from my disability as well as. Then when tax time rolled around, we owed almost over $2000.00 because of my backpay ($9000.00) as well as receiving 7 months of the past year a disability check every month that no taxes were taken out ahead of time.

Yeah, they tax your disability. Also, they wanted me to take Medicare for $65 a month. I told them no because (luckily and thank the Lord) my husband has great insurance.

Don't you remember when O.J. Simpson lost the civil suite brought against him by Nicole's parents and that young man's family? The families won $33 million. Well O. J. gets a $25,000.00 a month retirement from the NFL. They could not touch that. Also, he moved to Florida because in Florida, if you declare bankruptcy, they cannot take your home whether it has equity in it or not.

[quaoar]

3. Someone making less than 20K a year

Could do it if he/she is part of a two-income household or perhaps is a young person still living at home.

The idea is that a lot of people would do it if it was automatic because it would take an actual effort to opt out -- as opposed to the current situation where you have to opt in. A lot of young workers don't have 401Ks, not because they can't afford it, but because they think it's stupid to save for something 40 or 50 years away.

Even if it's just a few dollars a week, it's a good idea, especially if the company offers a match. If your company matches any of your 401K contributions and you don't take it, you're just throwing away free money.

[concord]

12. "especially if the company offers a match"

My company changed their "match" to putting ALL of it in our company stock. This was quietly done, without any outcry from anyone. That was five years ago. I am now able to move some of that "match" out, but it's not nearly worth what it had been five years ago.

As a matter of fact, the whole 401K debacle is not delivering on its promises IMO. I stopped pouring my money into the black hole 2 years ago, and am using conventional savings methods.

I wonder how many others have come to the same conclusion.

[hippiechick]

40. Conseco did that a few years back, as well ...

... and then declared bankruptcy, so guess what happened to those folks w/ Conseco stock as 401k dollars ?

E-N-R-O-N'ed. :(

Fortunately, I was not one of them.

[quaoar]

64. My company's match

is a cash contribution to my account.

[intheozone]

5. Maybe what should be automatic

are jobs that pay more than 20K a year so workers would have some excess money to put into retirement accounts. Hell, for that matter, how about just JOBS being automatic. Why isn't Congress focusing on getting JOBS for people here in this country???????

[Desertrose]

7. Maybe they should just improve the SS system

and not break it?

[DBoon]

11. Maybe mandate employer matching for 401 k plans

If contribution were automatic, it would have to be set at some low level, 2% of gross pay perhaps. With mandatory matching, it would be 4% net.

Increasing the burden on lower income workers would ideally be offset by expanding the EITC.

[Frances]

9. "Reforming " the 401 K plan

Don't you love how the MSM touts any Bush proposal for change as reform?

Anyway, two can play this game. It makes a lot more sense to "reform" 401 K plans than to "reform" Social Security.

The real reason that Bush didn't start with 401 K plans is that he wants to abolish Social Security.

[Nay]

10. I'd like to know how the poor are supposed to save in 401K's too.

And furthermore, I'd like to know when there will be ads all over TV about how buying more junk and fast food is the wrong thing to do. Or better yet, let's get people to save money by banning all advertising so they won't be tempted every time they turn around. How 'bout that for an idea?

Oh, wait a minit. This WHOLE economy revolves around ever-more-clever ways to separate citizens from their money, and economists come down on us because we aren't saving our money?? Huh?

Theoretically I agree that we should all save more money, but these economists also must know that no one but multimillionaires can save enough money for all the things they expect you to save for -- your own education, your kids' education, health insurance rates, car insurance rates, your parents' old age, your own old age, breaks and gaps in employment, etc., etc. NO ONE makes the amount of money needed to do all this. NO ONE. Especially when they are shipping all decently-paid jobs overseas, gutting pensions, trying to kill SS, and pushing the costs of health care and gas thru the roof.

[Indykatie]

13. Cumbersome Enrolment Process

Many new employees don't take advantage of company's 401k plans because they view the enrolement process as being too cumbersome. Often this inolves requesting a Pin number that is not estabished until the employee has been on board for weeks and sometime months. The company that I work for has a very generous match and still we have less than 75% participation.

[Rose Siding]

14. Our boss explained it carefully, like a perk he was proud to offer

I think we only signed one paper, determining the % deducted. I don't know the participation rate but there are many who scrape to get by in low wage positions.

[Lydia Leftcoast]

46. Not to mention quarterly taxes for the self-employed

which is where a lot of my "savings" go.

[TahitiNut]

15. Unless and until a Living Wage is obligatory for any employment ...

... where others ("owners") profit from the labor of an employee, we'll continue to confront the life-long inequity resulting from the morally bankrupt commoditization of labor.

Let me be clearer. I support a three-tiered compensation ethic. For any labor invested in a for-profit equity commercial enterprise, the minimum compensation should be 1/1800th of the annual poverty level for a family of two. In such enterprises, employees required to be "available" and "on-call" should receive a minimum compensation equal to half that rate. In non-profit and owner-operated (proprietary) enterprises, I'm willing to accommodate a federal minimum wage that's half the living wage. For volunteer work in non-profit enterprises, workers should receive credit for a charitable contribution equal to the federal minimum wage. (There's no ethical reason under the sun that such credits should be limited to property.)

[htuttle]

16. This sounds like another plan to prop up the stock market

Maybe I don't want my wages to be invested in American death corps, and maybe I don't want to support a bunch of silk-tied Wall Street mobsters -- would I get a choice? No.

This is just another way to siphon all the money in America up to the rich.

[Zgrrl]

20. My sentiments exactly...

I agree with your post, htuttle. I like to do direct investing - which I do through netstock direct. I get to choose who gets my money. I don't like 401k plans because, as someone else on this board pointed out, often you are forced to put your money into the company's stock, or an "S&P 500" fund or something like that, and you may not want your money going there.

Also, I don't make a whole lot of money anyway...I am one of those people that has to first take care of my bills and make sure there's enough to cover those before I can decide how much I'm going to invest in my stocks. But at least I'm trying to do something.

It's shit like this that makes me glad I work for myself.

[makhno]

27. Exactly

Actually forcing people to participate in the stock market? Fuck me, but, that's as a bad a case of corporate welfare as I'd seen in recent months.

401k is one of the sickets, most underhanded scams perpetrated on the American worker. It ranks way up there with bottomless credit card debt as a way of creating the illusion of a safety net in a system that is hard at work eliminating its last shreds.

[kineneb]

17. As a person who makes under $20K

We are not "making it." Hubby has diabetes with complications and cannot work, yet because he was a computer tech, the gov. won't give him disability. I have a $10/hr (35 hrs/wk) job with no benefits. I voluntaraly cut back my hours to reduce the amount of "share-of-cost" for MediCal/CMSP so Hubby could get medical coverage.

SoSec is all we will have. 401k is not an option. Neither is saving anything. I consider it a luxury to be able to have a lunch "out" occasionally, otherwise it is PB&J sandwiches.

[w4rma]

22. I think they are looking for ways to get more money into the stockmarket

where they can get at it and steal it.

And/Or, prop up the stock market a little bit longer until more people's lives are destroyed while Republican policies squeeze everybody.

[Writer]

24. I'm chuckling, because I find this so ironic...

I understand that an employee can "consciously" opt out, but a 401(k) plan typically means that a person pays into his or her company's stock. Because this plan means automatically deducting 401(k)savings from a paycheck, may I point out how similar it is to a tax that we pay to the government for retirement... I dunno... maybe something like social security?

Just a thought.

[frankly_fedup2]

25. Ours does not work that way. We decided where we wanted our . . .

money invested and if what percentage of risk. The company's stock can be purchased separate from the 401K if wanted. If not, no one is forced to invest only in that company.

That is what I found so odd about Enron and those people losing their 401K. Their accounts had no diversity at all. Could it have been because Enron was paying for their retirement in full through a 401K policy that only bought Enron's stock? Sounds twisted when you think about it.

Also, wonder how many companies are like Wal-Mart and take our life insurance on each employee and they are the beneficiaries.

I guess the Wife of Sam Walton and his daughter(s) (I do not remember if he had any sons.) cannot get buy on the 3+ billion each when he passed.

[Trillo]

29. Curious logic.

If the purpose of a worker is to do a job, and in exchange be paid for that labor, why would anyone suggest another duty of that worker is to give some of the money he's paid back to the payers (corporate entities)?

Isn't it just another way to artificially inflate the compensation of workers, to create the perception of greater compensation, without actually paying them higher wages?

It's another gamble. Casino logic.

[ozone_man]

31. And a bad gamble at that.

Trying to prop up the stock market again, when it's about to take a nose dive. Once the bear market resumes, it will discourage some of these piratization plans. Can't happen soon enough IMO.

[Charles19]

33. Would be great but, they need real options in 401k's

Like you should not have options only for mutual funds or stock in your own company. People should have the freedom to sideline their money from the markets. Whether they want to put it in American cash or foreign cash, people need that. Without it I don't think it would be ethical to make them pay into a 401k. It is too risky.

[MidwestMomma]

35. Why don't corporations go back to offering pension plans????

Now there's a heck of an idea!!

I remember when the whole 401k idea started many years ago the opponents of it stating that what would happen is that companies currently offering a pension plan would opt out and offer 401ks only and the lower middle class worker would get screwed because they wouldn't be able to save money. Also, even for those workers that actually could afford to put a portion of their income into a 401K, that many would end up using their proceeds for things such as purchasing a house, college education, etc and not end up with much when they retired. (Those are a few of the things you can withdraw money from your 401k for before retirement and not get penalized.)

And that's pretty much what has happened.

Remember the good old days when you worked for a company and as part of your benefits the company offered a pension plan that the company paid money into and then after so many years at the same company, you were vested in that plan and you could count on that income when you eventually retired. And if you quit a job after you were vested but before retirement, you could roll that money into another pension plan or an IRA or something.

Corporations are such heartless bastards. They take and take and then when they are done with you....bye bye. No more obligations.

I went to work for my current employer because they offer a regular company paid pension plan and a 401K. But there are not many companies left out their offering pension plans.

Thanks for listening to my rant. This subject sets me off!!!

[despairing optimist]

39. Some people see need for balanced budgets and impeachment proceedings

[leesa]

49. "Some say..." Translation...little support for it

[alarimer]

54. Who can afford yet another drain on their income??

I make over $30k and I CANNOT afford to contribue to a 401k, so how is anyone making less going to? This is fucking ridiculous. Maybe legislate a living wage would be a good start.

[high density]

58. My employer (a bank) is begging us to put money in our 401(k)s

Heck, they even sent out a propaganda letter reminding us of how "uncertainty" surrounds the future of Social Security.

To be honest, I'd love to take adantage of this to suck some matching funds out of them, but right now this money is better put toward paying down my student loans. Once I have those paid off (5+ years) I'll think about starting up a 401(k) account.

[donco6]

61. What's your interest rate on the student loans?

And have you done an analysis of your earning potential in a 401K versus paying off the loans? Unless you're only paying the minimum on your loans as it is. Then there's no point in discussing.

[mopinko]

63. explain to me

how someone who only makes $20k retires at all if they don't manage to save something on their own? $10 per check, even.
but if you really can't, then you can opt out. i fully support this idea. it is simple, it costs nothing, it hurts no one. i can't believe people could find something to complain about.