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Retirement Proposals

Recently, very public and very nasty pension bankruptcies have led legislatures to propose several changes to the way retirement works in America. Top on the list is pushing tougher rules on companies so that situations such as United Airlines, who earlier this year turned over their pension to the Pension benefit Guaranty Corp. and gave their retirees the big shaft, don’t happen. Did you know that the total pension shortfall was $450B? There are more initiatives being pushed such as automatic enrollment in 401(k) plans on employment, increase minimum matching contributions, and making the employer matches vest in two years instead of the typical five.

The pension part probably doesn’t interest most of us simply because there’s nothing we can do about it. The employees of United Airlines who had a pension couldn’t do anything to alleviate the risk (short of cashing it all out or something) so they couldn’t really second guess their decisions – they made none.

The 401(k) related initiatives are the ones that draw the most interest, but again, probably not of readers of personal finance blogs. You all know about 401(k)’s and I would imagine most of you are enrolled or you have a good financial reason for not being enrolled. These initiatives are to help the less educated who aren’t.

Automatic enrollment: This would automatically enroll an employee at a 3% contribution level and then increase it 1% per year until contributions reached 6%. At my company, to receive the maximum employer matching you need to contribute 6%.

Offer 50% matching or contribute 2% of pay whether they contribute or not: I like the first one (that’s what my company does) but the second makes no sense. Why should an employer be forced to contribute to an employee’s retirement if the employee doesn’t do it for him or herself?

Matching funds vest in 2 years: This is where you can see legislatures understanding the nature of employer-employee relationships today. Folks typically change jobs more frequently now and the percentage of people under 35 employed with the same company for 5 years has probably plummeted drastically.

Increase annual 401(k) contribution limits: The $14,000 2005 contribution limit (and the higher limits in years to come) are set to expire in 2010, they want to make these limits permanent.

What do you think of some of these (esp. the 2% regardless of contribution)?

via CNN/Money [3].