Liz Pulliam Weston reports on 7 Hot 401(k) Trends that work to give the relatively mature tax-advantaged retirement account system more credibility. The seven points, with my take mixed in:
- Making retirement saving automatic. As in automatic participation for qualified employees; non-participation was a surprisingly high percentage of qualified employees (almost 30%). This is amazing to me, since it's basically throwing away free money! I wasn't aware that there was a tie-in to higher-income contribution limits based on “rank-and-file” contributions.
- Simplifying investment choices. Before there was too much leeway in what the funds could contain; now there's less, and probably for savvy investors, not enough leeway. A number of choices for stocks, bonds, and cash are still stocks, bonds, and cash. Life-cycle funds (funds that change allocations based on prescribed, conventional rules of relative risk) offer options for the fire-and-forget investor, but this isn't a cure-all or a guarantee of good returns. Automatic rebalancing should not replace thinking!
- Restriction of company stock investment in 401(k). So as to avoid overexposure to employees' monies in one sector. All in all this will benefit most people.
- Reducing 401(k) management fees. No argument here! I like keeping more of my investment return!
- Stemming cash-outs. Meaning: It's harder to get your hands on the 401(k) funds — and the matching funds — after you leave a company. Some companies are playing keep-away by automatically rolling them into an IRA for you if you leave. Overall, this is good because it keeps retirement savings where they belong — for retirement!
- Advice. A helping hand for those who need it with their investments is also a good thing, as long as, of course, it's good advice!
- Ahhh! The Roth 401(k). Tax-free accrual, and tax-free withdrawal, just like the Roth IRA. The restrictions on the Roth 401(k) are stronger than on the traditional 401(k), so be sure you don't need the money you put into it before retirement! Also pray that the government doesn't change the rules too much before you retire!
