Defaulting to Having Employees Fund Their 401K Pension Plans (buying, companies, tax)

[NewToCA]

A discussion I have not seen is about the recent change in law which requires employers to default employees as contributing to their 401K Pension Plans, as opposed to having to proactively select to make these contributions.

A few questions for our astute forum posters:

-Do you think this is fair?

-Do you think this unfairly enriches financial investment houses?

-What impact do you think this will have on the financial markets?

-What impact do you think this might have on Social Security payouts?

-Do you think this is an intelligent approach towards fixing our inadequate savings rate?


New 401k plan rewards for nothing - Retirement - MSNBC.com

[cdelena]

They can opt out but if they do nothing they are in… IMO it is the best default.

I think it is more fair than leaving them out. It will only unfairly enrich financial investment houses if the company contracts for a poor plan. I don’t think it will have a major impact on the markets but have no real data to state that. I do not see how it will have any impact on SS. It is only a single step in addressing inadequate savings.

[NewToCA]

Do you think it is possible that Social Security might be "means tested" for benefits in the timeframe it is expected to start running into financial shortfalls (best guess today from their administrators is 2041)?

The reason I ask this is, would a "fat" 401K possibly become somewhat self defeating if the assets accumulated in the 401K would be part of a means test asset base, possibly resulting in reduced Social Security benefits for the "wealthy" members of society?

Just a thought, I hadn't really ever seen this discussed as a potential item of concern.

[cdelena]

Originally Posted by NewToCA

Do you think it is possible that Social Security might be "means tested" for benefits in the timeframe it is expected to start running into financial shortfalls (best guess today from their administrators is 2041)?

The reason I ask this is, would a "fat" 401K possibly become somewhat self defeating if the assets accumulated in the 401K would be part of a means test asset base, possibly resulting in reduced Social Security benefits for the "wealthy" members of society?

Just a thought, I hadn't really ever seen this discussed as a potential item of concern.

Certainly it is conceivable that AGI could be used to means test SS in the future.

For this reason and because RMD’s from IRA/401s at 70.5 can have other tax implications I always suggest using maxing Roth accounts (after getting matching funds) before putting more funds into IRAs or 401 accounts.

[lchoro]

You left out one reason companies want this. The employees are automatically enrolled in buying their company stock while the executives continue to cash out. It helps finance executive compensation plans by creating another source of funds for corporate shares.