There could be enough bi-partisan support in Congress to pass legislation to stem pre-retirement outflows from 401(s), said Senator Tom Harkin, who chairs a Senate pensions committee.
“There is not a whole lot of difference politically in the parties” on thei issue, despite deep divisions in Congress on other matters, Harkin told Financial Advisor yesterday. Harkin, (D-Iowa), is chairman of the Senate Health, Education, Labor and Pensions Committee.
Proposals that would make it harder to withdraw employer contributions before retirement and easier to roll over a 401(k) after a job change also could get enough support to become law, he added.
Lamar Alexander (R-Tenn.), lead Republican on the pensions committee, said he’d like to see 401(k) portability made simple with “a one-page form. Fill it out and that all there is to it.”
He said he is extremely worried 401(k)s are becoming simple savings accounts rather than retirement plans.
At the hearing, estimates were presented that 20 cents 25 cents out of every dollar contributed to 401(k) are taken out for non-retirement purposes, often referred to as "leakage."
Early in the session, Harkin said the nation is facing a retirement crisis, with Americans having $6.6 trillion less in savings than they should to live past their working years. He said half of Americans have saved less than $10,000.
Alison Borland, the head of retirement research for Aon Hewitt, the largest independent retirement plan administrator in the country, offered the eight suggestions to decrease "abusive" leakage:
• Limit pre-retirement loans and withdrawals to employee contributions and make them available only with documentation of need.
• Reduce the maximum dollar amount for loans and withdrawals.
• Establish a 12-month waiting period between the time a new loan can be taken after repayment of a prior loan.
• Increase the tax penalty to 15 percent or more for withdrawing money before the appropriate age.
• Allow defined benefit plan sponsors to eliminate lump-sum options.
• Encourage lifetime income.
• Educate workers about the benefit of retaining dollars in their employer plan after employment termination and/or encouraging rollovers into employer plans.
• Promote financial literacy.
Harkin: Congress May Stem Pre-Retirement Outflows From 401(k)s
March 20, 2013
« Previous Article
| Next Article »
Login in order to post a comment
Comments
-
I didn't take Mr. Cole's comments to mean Socialism or Nanny State. I wouldn't under any circumstances allow any with any level of government to be in charge of financial education. That is the quandary, I would only trust private institutions to do the educating, but there is very little incentive for a private institution to do so. My Sister In Law is a 25 year Physical Therapist at a huge Not for Profit Hospital System in Texas. For the first 23 years she received a nice 6% dollar for dollar match. With no pension, that seems like a very nice match. 2 years ago the Hospital "outsourced" the entire Physical Therapy department to a National for profit Corporation. They immediately dropped the 401k match to 1.5%. That is rough.
-
Mr. Cole, I agree whole heartedly. Aon Hewitt seems to mean education should be targeted towards keeping 401k assets with them Aon Hewitt forever and ever. Don't ever roll it over at retirement, leave it with the employer and take a lifetime income. Seems very self serving. Education, education, education. Start it much earlier than when individuals enter the work force. Start it in Middle school or High school. Continue it through Traditional and/or Technical Colleges. We need an entirely different mindset in this country regarding consumption vs. saving. I preach it over and over to any new grad that will listen ( very few ), withhold 15% from your first paycheck before you decide on your first apartment, vehicle, clothes etc... You must take care of your retirement first. Personally, I would rather my soon to graduate oldest son move back in with my wife and I and withhold 15% from his paycheck than stretch for an apartment and only withhold less than 5%. Lifestyles will improve with salaries.
-
"Promote financial literacy" - They should STOP right there. How arrogant of our elected heroes to lecture anyone on the proper handling of money - especially Dims. This money BELONGS to the employee - end of story! Evan Cole may enjoy the idea of a nanny state but I, for one, resent legislators telling me or anyone else how to live.
-
This is a much bigger issue than what Aon Hewitt is recommending as a fix. A good start but too flexible. Retirement money is for retirement. One cannot withdraw social security, one should not be able to withdraw their retirement money. Here are a few more possibilities: eliminate withdrawal options then there is not need for a tax penalty, eliminate loans, employees should not be expected to be financially literate. Here's why: to drive a car we require a license and periodic testing. Employees should be required to work with a financial professional. Aon Hewitt should know, alone educating the employees does not work, they must have someone who guides and advises them. Investments are too complicated and they are changing annually. Employees can not be expected to keep up with all of the changes. Sure, target funds, index funds and lifestyle funds are all good, but this is a relationship business. Use qualified advisors to advise the employees. Also, employers must allow their plans to offer advisor advice, It doesn't cost the employer anything to do so.Employees should be allowed to work with a financial advisor of their choice, Defined Benefit plans use to have an employer contribution until employers walked away from them. Employers should be required to make a substantial employer contribution on behalf of their employees.That is a major reason employees can not retire, employers do not do their part . There is more responsibility toward being an employer than providing a job. Health and welfare to their employees are part of their responsibilities as well. I am not advocating socialism, but capitalism with a humanitarian conscious.