Friday, April 03, 2020

The popularity of 401k plans has continued to grow since the early 1980's, and for many companies it is their primary retirement plan offering. These plans permit employees to defer on a tax deferred basis up to $15,000 in calendar year 2006. Participants over the age of 50 can defer an additional $5,000 in “catch up” contributions. Any employer contribution would be in addition to these deferred amounts.

Prior to 401k plans, employer sponsored defined benefit and defined contribution plans were provided to eligible employees. The contributions to these plans and the investing of the contributions were left up to the plan sponsor (company). Investing in 401k plans, for the most part is determined by the participant. Numerous articles and studies have been written regarding the inadequate retirement savings individuals will have to live on. This is a looming concern.

When it comes to retirement savings, it is later than you or employees may think. First and foremost, employees need to be in the 401k plan. Next, they need to be contributing as much as is reasonably possible. Lastly, they need investment advice! Education and guidance, while helpful, just have not produced the needed results. From 1984-2004 the average annualized return for the S&P 500 was 12.98% whereas the average investor in stock funds had an annualized return of 3.51%.

After nearly 20 years of experience we now know that the vast majority of participants in 401k plans do NOT make changes in their plan investments, deferrals or rebalancing. At Asset Strategy Retirement Plan Consultants we address these issues head on with plan sponsors. Our consultants are ready to work with you and your team.