How much you put into your 401(k) and how your plan performs can determine how you enjoy your golden years. Will you live comfortably or will you need to sell peanuts at the baseball game? Recently 401(k)s have come under incredible scrutiny. The Department of Labor, who oversees 401(k)s, says 77-percent of 401(k)s are non-compliant with current regulations. Non-compliance includes failure to properly communicate the plan to employees, provide investment diversification or an investment policy statement, and more.
What is a 401(k)?
401(k)s give employees the ability to save for retirement tax deferred. They can start withdrawing as early as 59½, but typically depositors don’t tap their 401(k) until they are between 62 – 66.
Where did the 401(k) come from?
In 1974 the Employee Retirement Income Security Act (ERISA) was passed. It established minimum standards for pension and health plans in private industries. These standards were intended to protect individuals. The 401(k) was developed from ERISA.
What’s Happening With 401(k)s Now?
In 2009, Department of Labor enforcement officers levied $1.69 billion in fines for non-compliant plans. In 2010, they were targeted to hire an additional 780 enforcement officers, raising the total number of officers to 17 thousand. They plan to raise the number of officers again in 2011.
What’s the Big Concern?
According to the General Accounting Office, the average balance of those retiring last year was just $144-thousand. If you apply a 4-percent interest rate to this average savings, these retirees earn less than $500 a month in supplemental income to their Social Security.
Additional concerns from the General Accounting Office show 54-percent of Americans have less than 25 thousand dollars in retirement savings. Twenty seven percent have less than one thousand dollars in retirement savings.
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