Tuesday, September 8, 2009

Good Idea No Matter How You Shake It!

Can President Obama do anything with the GOP jumping down his neck, throwing outrageous accusations and false conclusions? No president will make every constituent happy. There is always bound to be someone, somewhere, most likely on Fox News, to make the argument that the intention of whatever the president plans is against some sort of inalienable right.

In the case of his retirement plan suggestion, the best move in quite a while, the right has paraded all sorts of nationalization rhetoric out, town-hall style to impede the plan.

First, the Plan
In order to get people to invest in their future, something 75 million Americans have failed to do or have done so inconsistently, the president is picking the low hanging fruit first. Most 401(k) plans were designed to allow employees to opt-in. This allowed those who understood what these plans provided to take advantage of them, often to the fullest while leaving those who had no or only rudimentary understanding of the value of these plans on the sidelines.

Creating an opt-out plan will net many of those who have failed to make the effort. By making the contribution to the plan 3%, the tax-deferred investment will not have any impact on an employees take-home pay. If they can see the value of not losing and pay as a result of the effort, there is a good chance they will stay with the plan.

President Obama made no direct calls to Wall Street or to the businesses that offer these plans to simplify them. This is probably, at least in the short-term, a good thing. Oversimplification of these plans will lead to less-risk in an effort to assure these new investors that their money invested will not be lost. This would be too bad and easily rectified by suggesting that these plans invest in the future, not save for it.

Second the Contribution
As many swords are, this one is double edged. Allowing you to put unused vacation pay into the plan may see less vacation time being taken. But I doubt it. The increased pressures in this sort of economy (ramped up production, less workers with the same work load) make vacation a necessity as never before. But squirreling some away, added to your regular payroll contributions and not going over the annual contribution limits would allow a worker to grab a few more investable dollars that they may not have had. Some companies have a "use it or lose it" policy when it comes to this type of pay. Investing would be a big plus for these folks.

Third, the Tax-Refund
I suspect that this idea will not be used by many people who look forward to that big tax rebate. Often poor and always unprepared, these people have too much income taken from their paycheck each week. Then, as soon as the new year turns, they are pre-spending this false savings, paying off Christmas excesses or simply splurging on something they could otherwise not have afforded. But for those that do take advantage of the plan, this is a golden opportunity to make some money. You do not need a Treasury account or even a bank account; simply check the box on your income tax form.

Fourth, the Rollover Roadmap
Numerous individuals do not understand the importance of a rollover. When it comes to retirement planning, taking a former 401(k) plan and choosing between a rollover to an IRA or taking a lump sum, far too many people take the cash. Economic reasons aside, this is a bad idea. The penalties and taxes seriously diminish the net proceeds and put you years behind when it comes to pinpointing a date when you would like to retire. With any luck, the effort to explain the consequences will mean less folks will do the wrong thing.

Fifth, the Approval
The upsides are numerous. Better access to plans with newer options to put away money for the future coupled with some straightforward talk may just do the trick. There will be resistance, as there always is. But if these folks take advantage of these new options, they, and the country will be set on the right course. The other upside, it can be enacted with Congressional approval.

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