Sure they “can” and would probably like to, but that is not what this bill is proposing. I’m not crazy about it but it is not as draconian as what the email you received is saying. And if I had a $1 for everyone of these type of alarmist emails I receive, mostly from my brother and SIL and my wacky liberal cousin, I could retire by now : ),
“Rep. Richard Neal (D-MA) recently introduced two key bills in Congress affecting retirement plans. On May 16, Neal introduced the Automatic IRA Act of 2013 (H.R. 2035), which would require employers with more than 10 employees to enroll their workers in IRAs via an automatic payroll deduction arrangement. Employees could opt out of the arrangement, and there is no requirement for employers to contribute to employees’ IRAs.”
“The bill would create a new federal debt security called an “R-bond” which would be the default investment option for employees should an employer not elect to use a private sector service provider to administer the arrangement.”
This would only apply to employers who do not already offer a retirement plan.
http://www.napa-net.org/news/technical-competence/legislation/bills-would-require-auto-iras-simplify-plan-rules/
I don’t like this bill for a few reasons, the biggest one being that it mandates that small employers (employers with as little as 11 employees) to take on additional payroll, administrative and regulatory burdens even if the employer is not required to contribute. While the new federal debt security “R-Bond” would be the default investment option; that would only be if an employer does not set up the company sponsored IRA with a private sector provider. Employees would be auto enrolled but could opt out.
And from what I have read, the bill has been introduced several times and hasn’t gone anywhere and this version isn’t likely to pass either.
Of course the “R-Bond” is supposed to be a safe non-volatile investment option but I have my doubts and wouldn’t want all my retirement savings going into one, but mostly because government bonds and securities are low yield.
FWIW my employer’s 401k has auto-enrollment after 90 days of employment at a default pre-tax contribution of 3% and into a default investment - Morgan Stanley U.S. Government Money Market Trust (US Government Securities). After auto-enrollment, the employee can opt out completely or change their contribution % and either opt to stay in the Money Market Trust or move all or part of their funds and future contributions to any number of other investment options which are many.
But the important thing to clarify is that this bill (at least as written) has nothing to do with existing 401ks and IRAs, Roths, etc. and it would not require you to move your investments or any portion of your investments into the newly proposed “R-Bond” nor would it end privatization of 401ks, IRAs, Roths, etc.
After talking to a CPA about withdrawing my IRA early, before 59 1/2 years of age, I'd recommend only putting in enough to get all the matching funds portion of an IRA.
Not good advice IMO and it goes against all conventional wisdom. The reason it is a good idea (especially when younger and or during your highest income earning years) to contribute the most you can afford to contribute to your company’s 401k plan, even over and above the match %, is that you are deferring tax on your income, currently up to $17,500 annually and (employer and employee combined) up to $51,000. This means you are deferring income tax during your high earning years (when you are mostly likely in a higher tax bracket), effectively lowering your taxable income while the earning gains on your investments over the long haul, also tax deferred. You are also deferring tax on your employer’s contribution. When you retire you are most likely going to be in a lower tax bracket, therefore even with tax increases (which are not necessarily a given), you are not going to take the same hit on those withdraws tax wise as you would have had you not deferred part of your income when you were working and your income was higher, i.e. you were in a higher tax bracket and during a time when you had higher expenses like a mortgage payment and children to support. Lowering (deferring) your taxes today and offsetting with investments that will pay off in the future is always a good plan and this is what major corporations and the very wealthy do in their tax strategies (look up “executive deferred compensation plans” and learn why they are so highly sought).
But put more funds into your own account, not an IRA, 401K, or Roth IRA. Say a Scottrade account, and handle it yourself.
While some people do well with a Scottrade account or in “day trading” in individual stocks, managing it all themselves, a lot of people lose money, some a great big heap of money. They lose money because they don’t understand the markets and they chase the latest and greatest - today’s “hottest” stock or listen to bad investment advice that they should ignore and without understanding that if you are saving for retirement, start investing a young age and slow and steady and understand that the “Rule Of Seven” and dollar cost averaging over the long haul is the way to go.
And when considering your company’s 401k plan you really need to look not only at what they match but also when and how they match; the vesting schedule and how long you anticipate staying with that company, what funds are available in the plan to invest in, does your company have a good track record of managing the plan, do they have an investment committee with people who know what they are doing and do they have a good plan administrator. While you might think it’s a good idea to manage your own Scottrade account, understand that a well managed 401k plan offers you the opportunity to invest in professionally managed funds that might otherwise be open only to big-money investors. Many mutual fund companies require hefty minimum balances to open accounts for individual investors. A good 401k plan will also give you tools to do things like rebalance or automatically increase your contribution as your income increases or take qualifying hardship loans or withdraws.
The company I currently work for does an excellent job in all these categories. My company also matches each and every pay and all company matches are fully vested from day one. They match 100% up to 3% and 50% up to 6% and they also have an annual profit sharing contribution (NEC - Nonelective Contribution). I can raise or lower my contribution % as often as I want (as opposed to what a lot of company’s do, locking you in on an annual basis). They also bring in a Morgan Stanly investment advisor in at least 2 times a year with who we can meet, completely free of charge and on company time, if we choose to take advantage of that. So I would be an idiot to not maximize my 401k contributions.
I cringe when I see these threads, because it gets people agitated. Most don't even bother to read the bill.
I try to inject some sanity into the discussion, but sometimes it seems futile. Some people just don't want to listen, and run around screaming like Chicken Little. They don't realize how foolish they look.
Very similar situation for me. Also we can opt to have a account manager make recommendations and make the trades in funds for the standard fees.