“Running on empty. Running into the sun but I’m running behind.”
– Jackson Browne
Internal Revenue Code section 401(k) is the only section of the U.S. tax code that average people can cite.
They know it has something, and often everything, to do with whether or not they can retire with dignity.
The adoption of section 401(k) in 1982 turned out to be one of those big moments that changed everything.
The 401(k) plan investments are a primary driver of investment markets. It is the employee retirement benefit that most companies offer.
These plan investments are also the reason many people are pacing the floors at night, watching their retirement get delayed or destroyed.
Until the 401(k) came along, pension plans were usually defined-benefit plans.
A defined-benefit pension is one that gives you a set number of dollars for a set period of time. It usually pays out over the course of your lifetime after retirement.
With a defined-benefit plan, the employer takes responsibility for making sure pension money is safe and properly invested.
State and local governments are about the only entities that still offer defined-benefit
Most states, like my home state of Kentucky, are struggling to figure out how to pay for promises to current retirees made by politicians long ago.
As a financial consultant, I advise anyone who can get a defined-benefit plan to maximize it.
As a taxpayer, I don’t want to pay for my neighbor to retire at age 50, when that is not an option for me.
With the advent of the 401(k), employees with little or no investment experience were required to pick among investment options offered by an employer.
Employees were put in the position to fail. Many have.
It is up to the employer to pick what investment com-pany handles the employee’s money.
If the employer picks a dog, with few options, the employee is out of luck.
Even worse, many companies push their employees to use 401(k) money to buy stock in the company they work for.
If the company goes broke, people lose their jobs and their retirement savings, too.
There is a second major problem – not putting enough money in the 401(k) to begin with. The 401(k) plan gives people too much freedom.
I’ve always encouraged people to put the maximum amount into a 401(k) plan. Few do. Many put in little or nothing at all.
Now they are looking at a bleak retirement. Or no retirement at all.
Defined-benefit plans encouraged people to stay at the same company. But, 401(k) plans do not.
I’ve watched tons of people change jobs and then blow the 401(k) money before they started their new jobs.
More than 70 percent of people with a lump sum of money will run through it in five years or less.
The same statistic holds true for 401(k) rollovers as it does for lottery winners.
Two things should be done to help people retire.
One would be to make it easy, and cost efficient, for employers to go to a defined-benefit plan and guaranteed income plans.
That would make sure our retirees have money for the rest of their lives.
Second would be to change the way 401(k) plans are administered.
Take them out of the employer’s hands and let employees invest in whatever, and with whomever, they like. Just like they do with their IRA accounts.
When historians study the cause of the 2008 economic meltdown, they will see that the change from defined-benefit plans to 401(k) plans in 1982 was a factor.
It was one of many shifts where dramatic changes were made in people’s lives and liberties. People didn’t realize just how dramatic until years later.
If we are going to keep from running behind, the 401(k) is one of those things we need to fix.
Don McNay is a columnist for the Richmond (Ky.) Register. Contact him at email@example.com.
“Running on empty. Running into the sun but I’m running behind.”
Portage eatery finds new owner
A popular Portage eatery, which has been closed since January, has found new ownership – and new life.
Ruby Tuesday agrees to $575K settlement in case involving Altoona, Indiana locations
The restaurant chain Ruby Tuesday, Inc. is paying $575,000 to settle a federal age discrimination lawsuit over five locations in Pennsylvania and one in Ohio.
Reservations about taxes: Why a 2009 law hasn’t stopped illicit cigarette deliveries
When Congress passed a law in 2009 effectively banning mail-order deliveries of cigarettes, it was expected to snuff out entrepreneurs on New York’s Indian reservations who were selling millions of cartons, tax-free, to consumers in high-tax states.
But the law, called the Prevent All Cigarette Trafficking Act, didn’t stop everybody.
NICK MASSEY | How to work out the 'math' of retirement
If you are one of the 78 million baby boomers rolling into retirement in the next 20 years, you might want to sit down and do a little math. Retirement is a lot more complicated than it used to be.
So, before you quit your job and venture into the next stage of your life, stop for a minute to consider a set of numbers that could make the difference between retiring comfortably and well, not so much.
Why job interviews are all about evaluator preparation
We’ve all been through job interviews, but being the one asking the questions is not always easy. You want to be fair and thorough when evaluating prospective employees, but also confident that you’ll gather sufficient information to make the right choice.
Fortunately, success on both sides of the interview comes from the same source – preparation. Doing your homework and taking a thoughtful approach to interviewing will make you as ready as you hope your prospective employees are.
- Business people | Goughnour named senior manager
BARRY GILCHRIST | How to protect your company by keeping corporate minutes
Most owners of closely held corporations regard their annual meetings as required nuisances. However, these meetings can fulfill important planning and protective functions, besides providing a chance for the corporate attorney and accountant to help finalize year-end planning and review the next year’s agenda.
- Real estate transactions | 12/8/13
Atlantic Broadband boosting Web speeds
Massachusetts-based Atlantic Broadband announced this week it is boosting Internet speeds by 50 percent or more to some of its high-speed service offerings in Johnstown.
Richland woman opens development center
It only took a few years after graduation for Ashley Parkins to catch her big break.
With her human development and family studies degree from Penn State Altoona in hand, she began building her career in child care. When opportunity struck, she seized it – and it was right in her own backyard.
- More Business Headlines
- Portage eatery finds new owner