AP: Employers boost 401(k)s to meet workers' demand

[Omaha Steve]

http://apnews.excite.com/article/20080811/D92FRQQG0.html

Aug 11, 12:14 AM (ET)

By DAVE CARPENTER

CHICAGO (AP) - Corporate America may have turned its back on traditional pensions but it appears to be embracing 401(k)s more than ever.

While retirement savings remain largely up to employees, companies are spending more to strengthen their plans through features that boost savings such as automatic enrollment, advice and more investment options. Some also are increasing or initiating matching contributions.

Many executives say it's a matter of meeting employee demand and makes good business sense too.

The trend of companies beefing up and expanding their 401(k) programs was underscored in a poll of senior finance executives from large companies nationwide, released Monday by the Charles Schwab Corp. (SCHW)

The survey respondents were not disclosed but evidence of 401(k) upgrades abounds.

Ariba Inc. (ARBA) (ARBA), a Sunnyvale, Calif.-based company that produces accounting software, has made a half-dozen improvements to its 401(k) plan since 2006. It began matching employee contributions up to 6 percent, made enrollment automatic and added a Roth option and target-date funds.

FULL story at link.

[MrModerate]

1. My company has done this for 25 years . . .

They never liked the conventional pension route and, as a private company, have no stock options to give out (although they do have "shares" for upper-upper management -- which have to be sold back upon retirement, thereby avoiding dilution of ownership). Consequently, company stock is not part of the equation at all (a weakness of some other 401(k)s I've read about). They match up to 6% and also allow after-tax Roth IRAs if that's your preference.

While I might be vulnerable to a total meltdown of the economy, it feels more secure than a defined benefit pension where the company starts underfunding the pension plan and can't pay the benefit.

[cap]

2. 401k's are no good in a down market

if you are cashing out in a down market, you will not have as much money.

If given a choice, I prefer that the government enforce the laws on funding pensions properly.

[MrModerate]

3. Admittedly if you want it all at some magic age and the market is bad . . .

Right then, you'll suffer. And of course, the government should enforce pension funding laws properly. But you don't generally have to cash a 401(k) in toto on a given date and the big corporations have so muddied the legal waters regarding their pension obligations that reliability may be unrecoverable.

[cap]

4. my MIL is a perfect example of wanting to cash out in a down market

health reasons force events to occur and that's why I prefer to see the government enforce the law on pensions. Old age brings on personal limitations. Everyone is not taking into account the added costs of poor health. People are trying to think of poor health in old age as something that happens to someone else because they don't take care of themselves. The vast majority of the elderly have health/stamina issues that limit their ability to work. The whole business about working until you die is not at all realistic. At best, you can work till you get too sick and then you need something to back you up. Thus, a social safety net -- not an individual safety net like a 401K or personal savings.

The other problem with 401Ks is that people can choose bad investments or get rooked by companies like Enron and have nothing at all in their 401K. Most Americans don't go to college so expecting high school graduates to have the financial acumen of college graduates is risky. With layoffs, people will be dipping into their 401K. Long term unemployment occurs in people aged 45+ (ie more than 6 months). The folks who have built up their 401K have been cashing it out to eat and maintain their mortgages. These folks will be hard pressed to regain their financial security. Why should we go back to the old days of massive senior poverty? The best argument that you can provide will be that YOU PERSONALLY can avoid this bad situation but you have no remedy that applies for the general population.

Pensions are supposed to be one leg in a three legged stool -- Social Security, Pension, and Personal Savings. Note that 2 out of 3 are guaranteed. The overwelming majority of American workers are guaranteed to have some income in their old age with Social Security. Pensions used to provide a guaranteed income for most American workers -- now it is only 20% and if you take out the government workers (who are aging out of the pension system into 401Ks) and teachers, it is actually much less. Personal savings was to add onto this.

Most of us will have at best $100K in their retirement accounts and are hoping not to sell their homes in a down market. That down market in a real estate is set to be more permanent than what you think. Jeremy Seigel of Wharton School of Business and Vanguard Fund has already run projections looking at a massive asset deflation as baby boomers retire. Count inflation in and you will not be making your numbers. If you cash out your house, there aren't going to be as many buyers so the price will be less. We just arent going to have the money in the stock market or in real estate in the future.

I think pensions will have to be reformed and nationalized like an expanded social security system . Adequate safeguards need to be put on that system so no one dips into the till. Sorry, but the private system just isn't working.