Question

A 401(k) is a retirement savings plan sponsored by an employer. It lets workers save and invest a piece of their paycheck before taxes are taken out. Taxes aren’t paid until the money is withdrawn from the account. 401(k) plans, named for the section of the tax code that governs them, arose during the 1980s as a supplement to pensions. Most employers used to offer pension funds. Pension funds were managed by the employer and they paid out a steady income over the course of the retirement. (If you have a government job or a strong union, you might still be eligible for a pension.) But as the cost of running pensions escalated, employers started replacing them with 401(k)s. While experts advise that workers need to save about 15 percent of their annual salaries each year to be able to retire comfortably, many, if not most, do not save that much. In an attempt to change those’ behaviors, some employers are raising their contributions, both to attract and retain employees, and also to ensure that older workers retire on time to make room for younger ones. Read more about this issue here in an article in the Wall Street Journal about how some companies are approaching this issue. (Link no longer working) Additionally, in Pennsylvania, state lawmakers have been working to reform the current pension plan into a 401(k) style plan for future state workers and school employees due to the rising debt from unfunded liability running close to $8 billion (they didn't put money into the pension plan that they knew they needed to put in and spent it instead). However, with this reform, current lawmakers had an option to change to this new plan they were requiring all new lawmakers to choose, and the vast majority are choosing to stay with the pension rather than convert to the 401(k) option (although there are several that opt out entirely). This is in addition to being the second-highest paid in the nation with a $183 per day per diem. Think about the following when formulating a response to this topic: Will generous 401(k) contributions attract and retain top talent? Why or why not? During the Great Recession (2007-2009) many employers suspended or reduced their contributions to 401(k) plans. Should a firm's contributions be tied to its financial results each year? Will automatic enrollment of all new hires and current employees in 401(k) plans, coupled with increasing contributions each year (unless an employee opts out), actually boost savings? Should employees be able to take loans from their 401(k) plans during their working years?

Answer 1

Will generous 401(k) contributions attract and retain top talent? Why or why not?

Answer:- Yes, it will help the companies to attract and retain the top talent in the organization as it will provide the employees to work with the organization for longer tenures. This will create a monetary buffer for the employees working in those organizations which offer 401(k) plan. As there is also a contribution from the employers, this can be seen as added monetary benefits which can be obtained at the retirement.

During the Great Recession (2007-2009) many employers suspended or reduced their contributions to 401(k) plans. Should a firm's contributions be tied to its financial results each year?

In my opinion, there must be a link between the financial performance of the company and their contribution towards 401(k) plans, this is due to the fact that the companies can only provide the added monetary benefits when they have extra revenue to serve their manpower If the financial difficulties prevail then the companies will not have enough funds to operate even the normal operations of the firm which can result in the shutdown of the firm or losing many jobs in the form of layoffs.

Will automatic enrollment of all new hires and current employees in 401(k) plans, coupled with increasing contributions each year (unless an employee opts out), actually boost savings?

Yes, as there will be an auto deduction from the salary of the individual thus it will be a forceful saving which can be used by the employees in the future.

Should employees be able to take loans from their 401(k) plans during their working years?

Yes, as the funds accumulated in their 401(k) account belongs to the manpower thus they should be given the right to use it for loan purposes.