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401(k) Elbowing Out HELOCs As Rainy Day Fund

Broken Piggy BankAs has been widely reported, Americans have increasingly turned to their 401(k)s to fund emergency expenses.  Of course, withdrawals before 59 ½ are subject to an additional 10% tax.  As this Bloomberg story notes, the IRS collected $5.7 billion from the early withdrawal penalty, which means people withdrew $57 billion early.

As we have said before, 401(k) plans were actually never intended as retirement plans, but as savings plans.  That’s why they allow distributions on hardship and for other purposes.  So if 401(k)s are being used as more or less originally intended, why is this a problem?

First of all, it’s interesting behavior considering so many participants are concerned their 401(k) plans won’t be available to help fund their retirement, as we discussed previously.  By withdrawing early, some participants are turning their fear into a self-fulfilling prophecy.

Additionally, as pensions have slowly (and mostly) faded to black, 401(k)s have become the dominant retirement planning vehicle.  Thus, lawmakers and others have increasingly become concerned with so-called “leakage.”  However, as this behavior shows, leakage is going to happen as long as it’s available.

So what’s the answer?  The article makes this observation:

Congress, retirement experts and administration officials who are concerned about early withdrawals have two suggestions, totally at odds with each other: Lower the penalties or raise them.

Obviously, you can’t do both.  Raising the penalties (or flatly

Americans Running from 401(k)s?

As reported here, the Great Recession apparently has spooked some Americans from relying on their 401(k)s.  As the article notes: 

Before the Great Recession, most Americans said they planned to rely on their 401(k), IRA, Keogh or other retirement savings when they left the workforce, according to a new poll from Gallup. Today, only 48% say they would use these savings in retirement, and numbers have yet to rebound to where they were before the 2008 sell off. 

Respondents said they would be using IRAs, CDs, savings accounts and more, in addition to their 401(k) plans.

This is an interesting result, given that 59% cite having enough money in retirement as a top financial worry. 

Yes, it’s true that 401(k)s, like every other investment-type account, took a nose dive in the Great Recession.  However, this study from the Employee Benefits Research Institute shows that 401(k) balances were actually higher as of the end of 2011 than they were pre-recession.  Yes, some of that is due to additional contributions, but to say the numbers “have yet to rebound” is not accurate.

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The results also bespeak a misunderstanding of proper retirement savings.  It is possible that this seeming disconnect is the result of a lack of understanding on the part of participants – understanding of the need for long-term investing to retirement, the markets, the tax  law, the benefits of pre-tax savings, the opportunity presented by

As Different as Night and…Later That Night


In one episode of Friends, Rachel, after breaking up with Ross (the paleontologist, played by David Schwimmer) started dating Russ (a periodontist, also Schwimmer).  The two Schwimmer characters, who may as well be clones but for their different spheres of employment, are sizing each other up in an exchange in the coffee shop after which Monica, Ross’s sister, observes ”They’re as different as night and… later that night.”

Monica’s observation is also applicable in comparing employer-sponsored coverage with ACA exchange coverage.  Consider this analysis by Avalere Health examining the data of enrollees in the ACA exchanges.  Of note, they said the following:

Double digit premium increases are likely in many markets in 2014.  Despite initial concerns about the age mix of exchange enrollees, the current age distribution appears to be close enough to plan projections to avoid driving major premium increases. However, secular increases in the cost of medical care and in utilization of services and new medical technology make it likely that exchange plans will need to increase their prices.

This is an interesting observation, particularly in light of the Robert Wood Johnson Foundation study that found that exchange plans had, on average, lower premiums, but higher cost sharing, than employer-sponsored plans.

So how does this tie back to Monica?  Despite some sounds of the supposed death knell of employer-sponsored coverage, a

Forget Spring – Government Audits Are In The Air!

Forget Spring – Government Audits Are In The Air!

May 1, 2014

Authored by: Christy Phanthavong and Lisa Van Fleet

Employers are all too familiar with the more common investigation efforts by government agencies, such as an EEOC investigation blossoming from a single employee Title VII or ADEA charge into an onsite investigation of purported pattern and practice violations, or HHS turning a self-reported breach into a broad review of HIPAA compliance.  But the government is increasingly expanding and using its investigation tools in less common areas.  Audits are in the air – are you ready?

Consider whether your policies, practices and files are in order on the following subjects:

  • Health Plan Audits under the Health Benefits Security Project (“HBSP”):  This audit initiative is part of the Employee Benefits Security Administration (“EBSA”) National Enforcement Projects.  It includes a broad range of healthcare investigations as well as enforcement of the Affordable Care Act (“ACA”). More specifically, EBSA will review plans for documentary and operational  compliance with the protections of Part 7 of ERISA which includes the Women’s Health and Cancer Rights Act, the Newborns’ and Mothers’ Health Protection Act, the Mental Health Parity and Mental Health Parity Addiction Equity Act, the Genetic Information and Nondiscrimination Act and Michelle’s Law – as well as the Health Insurance Portability and Accountability Act’s portability and nondiscrimination requirements.  EBSA’s  ACA compliance review encompasses market reforms, patient protections, extension of dependent coverage, internal claims and appeals, external reviews and grandfathered plans.  In addition, the HBSP continues EBSA’s long standing commitment to identify and eliminate abusive multiple employer welfare
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