Fix it.

Thanks.

The rest of the money that I have earmarked for retirement goes into a self directed Roth IRA.

I’ve been browsing through section 401 of the tax code and trying to find explicit information and haven’t formed any conclusions yet, but I do think I found what could be the key to why money is locked in while still employed.

I think it is important to realize that in the tax code and on all of the forms the money you put into a plan is almost always defined as “salary deferral”.

My wife is an attorney, not me but from my basic understanding I see this is important because if you are deferring part of your salary and it never touches you and the IRS doesn’t account for it then that is technically your employer’s money.

That money was never paid out to you, and instead you authorized the employer to defer that money into the plan. From there I think that is where the tax code, which states what qualified distributions are can maintain the position where you can’t pull the money out while an active employee because you have authorized them to defer that portion of your pay until a qualified distribution requirement has been met (attainment of age 59.5, hardship, death, termination, etc.)

So again, I’m not a lawyer and I haven’t received any definitive answer from someone with the authority to make a claim one way or the other, but that is the conclusion I have drawn from the information I have gone over thus far.

Anyway, doesn’t there seem to be a conflict of interest when a company’s C-level officers have a fiduciary duty to employees / plan members (to maximize their benefit and facilitate future financial security) yet at the same time have a corporate responsibility to shareholders (to get best value for benefits by tethering their costs)?

I realize that in terms of the corporation it’s commonly a balance between short term level of profitability and long term business growth, but the ERISA seems to legally change the game for the plan sponsors, who are compelled by the ERISA to act only in the interests of providing benefits to plan participants. I short, I don’t see how someone could have both corporate and pension/401(k) plan management responsibilities with impartiality.

I started putting money in a 401(k) with my first job out of college. I also started an IRA then, too, since my income was low enough and I didn’t qualify for the pension plan. My second job I didn’t use the company 401(k) – I didn’t like the vesting scheme. Stupid excuse, I know. But I did continue to contribute to my IRA. With my third job, I contribute to the 401(k) and I started a Roth IRA. And, starting this year, I began contributing to a Roth 401(k).

I’m a procrastinator because while I save, I procrastinate on upping the contribution amount I was giving 10%, and now I’m up to 11%. Or maybe I’m at 12% now! I don’t remember. It’s not as much as I think I should be putting in more, like 15-17%, but I bought a condo last year and have been trying to adjust to the new expenses. Next year I will probably up my contribution again. But, it’s always a hard choice: retirement or mortgage pay down or save up for big expense (painting my blank, white walls)?

1. What a fantastic idea. I am always looking for new ways to illustrate the benefits of contributing to a plan.

2. This is a good question and without digging through pages and pages of the tax code or ERISA I can only give my best reasoning.

I know that like you said, virtually all employers don’t allow you to remove money from the plan while still employed unless it falls under a clearly defined hardship rules (or in the case of a 403b they can follow the safe harbor guidelines or create their own). I think the revenue code allows for flexibility so the employer could allow money to be rolled out while employed but I think many find it easier to keep things in-house.

There are a few reasons for this. First, you have payroll deduction and a company match. From an HR standpoint it would make sense to keep the money there for many reasons. Then you have the various types of vesting schedules where again, the plan administrator can run into a nightmare trying to keep track of money in, money out, what’s vested and what isn’t, etc.

But ultimately I’m willing to bet it comes down to pricing. When an employer is searching for a plan provider they have to strike a balance between providing a good option for the employees why keeping costs down. Part of the proposal will include what types of administration tasks are outsourced, the level of assets that will be in the plan, and then how those costs are passed down to the employees.

For example, if an employer has roughly 100 million in plan assets and at 100M the provider drops their overall administration rate from 4% to 3% there is no way they would include a provision for employees to roll money out of the plan while employed. That could significantly reduce the overall assets and put either the employer or the plan provider in a bind.

But anyway, I wish I had a more concrete answer for you. The answer may lie in some legalese somewhere but I haven’t run across it. And since I don’t work at the employer/provider negotiation phase or deal with the development of the SPD I can only guess that the pricing and contract details play a large part.

Then I’d enroll to get the company match.

Thanks for the post, it was fun to read. I have two things to add:

1) for The Poor category, perhaps you could start showing up at these fairs with a stack of Form W-4s — that way you could demonstrate that by contributing a certain amount to their 401(k) account, they could in turn increase their allowances on the W-4 and come out even (or better) on their monthly paycheck, while increasing their net worth to boot

2) since you are a plan provider, perhaps you can give a square answer to this question: why don’t many (or any?) plans allow participants to rollover their present balance into an IRA *without* leaving the company or otherwise disenrolling from the plan? who most influences this aspect of the plan, the plan provider or the plan administrator? doesn’t the fiduciary duty of the plan administrator (ultimately a company’s CFO, or equivalent) require her or him to admit that allowing plan providers to “lock up” their employees invested monies (for the duration of their employment) encourages those plan providers to be less than competitive with the expense ratios of their funds (because they know their customer base is semi-captive)?

With that said, my main motivation for saving is strictly for my ‘future’ self. Having this knowledge base about financial ‘stuff’, if I didn’t save in a Roth and in my brokerage account, I honestly don’t think I could live with myself at 55-years of age, knowing that I EASILY could have saved some money when I was young, but didn’t.

I think folks that fall in the Procrastinator group are really going to have a hard time coping with their decisions later in life. Maybe it’s just me, but I would hope with all of the information out there, that NOT enrolling and doing the right thing for your future, would be enough to drive you literally crazy.

I fear waking up at 55-years of age with $7500 in my savings account and NOTHING else and meeting a guy on a plane or something as he discuss how much he has in his Roth 401k, IRA’s and other investments. THAT scenerio keeps me real motivated.

Far to many people think they know it all. I actively seek answers, advice and information on things that I don’t know. I am smart enough to understand that I don’t have all the answers and I think many in Generation X and Y are filled with excuses.

In 2050, there are going to be a ton of sad faces walking around.

I have a friend, B, who fits under the poor. I have to allow a girl some fun, and she doesn’t buy a lot of frivilous things, but I still wish I could explain to her that even $20 (pre-tax) would help a lot. She’s still fairly young, but now is the time to start.