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Having a somewhat paranoid personality, I find myself wondering if auto-enroll and (especially) auto-escalation - which my job has - are designed with the employee's well-being in mind, or just a ploy to prop up the stock market?
Say what you will about government incompetence, but the idea of tying things like my retirement and healthcare to my employer just sounds terrible. Also, auto-enrolling people into 401K sounds kinda like... ya know... social security.
> Also, auto-enrolling people into 401K sounds kinda like... ya know... social security. Companies auto enroll people into 401(k) programs because of participation requirements. For "highly paid employees" (i.e. executives) to be allowed to contribute to a 401(k), there requires a minimum level of participation from the rest of the workforce at the company. The easiest way to do so is to auto enroll people on day one…
The Problem Safe Harbor 401(k)s Are Designed to Solve
Before you try to understand what a safe harbor 401(k) is, you should know why someone would want one. Most 401(k) plans face an annual non-discrimination test. The IRS checks to see if a highly compensated employee or business owner is maxing out 401(k) contributions for the year, while the rest of the employees lag in their savings.
The IRS wants to see that all employees are taking advantage of the retirement plan, not just those with the high paying jobs. So it tests the plan to find out if the average contributions of highly compensated employees (those who earned at least $120,000 in 2016 or own more than a 5 percent stake in the business) do not exceed the average contributions of everyone else by more than 2 percent.
If you're a business owner and your 401(k) has low adoption rates or saving rates among rank-and-file employees, it may raise a flag for the IRS. According to Plan Sponsor Council of America (a lobbying business for the retirement planning industry), most businesses pass the test, but around 40 percent claim to have reported refunding or restricting plan contributions to do so.
That's right, refunding contributions! The IRS can actually reject a retirement plan contribution that it feels is excessive.
https://www.thebalance.com/what-is-a-safe-harbor-401-k-28942...
Say what you will about government incompetence, but the idea of tying things like my retirement and healthcare to my employer just sounds terrible. Also, auto-enrolling people into 401K sounds kinda like... ya know... social security.
It's government rules that create that reality.
It feels like everyone grew up hearing the same thing (people are poor planners, people go broke in retirement) and now as adults have vowed that will never be them.
The problem is that now everyone thinks this way - index funds are on the rise, people are saving into their 401k, I can't help but think that I should be zagging here when everyone is zigging. Unfortunately, however, I can't figure out what that other thing should be.
I wonder what percentage of 401k contributors has an IRA. General rule of thumb is to contribute enough to 401k to get maximum company matching and max out your Roth IRA contribution first. IRA is generally preferred because you can choose your own fund (e.g. Vanguard) and has more flexibility in certain situations. By having both pre-tax (401k) and post-tax (Roth IRA), you would be also diversifying your tax liabili…
There are lots of situations where you would want to lower your tax burden now instead of go for the Roth.
Note that you can also have a Roth 401k or a traditional IRA.
I'm not planning on Social Security being around by the time I'm old enough to tap into it, and I'm also not planning on having any kids to bail me out when I go senile, so yeah I'm putting a lot into my 401k. I think a lot of people my age (turning 30 next week) are feeling the same way, so I wonder if it's younger workers driving this trend.
I have not heard this sentiment from younger blue collar and service workers, who are much more likely to need to rely on social security. I'm planning our retirement without needing any SS money, and whatever we get will just be some extra on top. Many non-professionals don't have this luxury.
Having a somewhat paranoid personality, I find myself wondering if auto-enroll and (especially) auto-escalation - which my job has - are designed with the employee's well-being in mind, or just a ploy to prop up the stock market?
I'm not planning on Social Security being around by the time I'm old enough to tap into it, and I'm also not planning on having any kids to bail me out when I go senile, so yeah I'm putting a lot into my 401k. I think a lot of people my age (turning 30 next week) are feeling the same way, so I wonder if it's younger workers driving this trend.
I think it _could_ still be around, but I expect it to be replaced with something else or scrapped entirely.
IMO, it's life or death to save properly for retirement.