If a person with a 401(k) plan dies, the tax implications for the beneficiary depend on whether or not the beneficiary is a legal spouse. If the beneficiary is a legally married spouse, then he or she may roll over the total amount of the decedent’s account into an IRA with no tax implications except applicable estate taxes. No distribution must occur; the surviving spouse can maintain the funds in an IRA until April of the year following the year in which he or she turns 70 1/2—the age at which withdrawals from retirement accounts become mandatory. (more…)

Tax law changes also provide workers age 50 and older the opportunity to make additional “catch-up” contributions, above the maximum amounts listed above, to Roth and Traditional IRAs and to employer salary deferral plans. IRA catch-up contributions are $500 for 2003–2005 and $1,000 for 2006 and after. Catch-up contributions for employer plans are $2,000 in 2003, $3,000 in 2004, $4,000 in 2005, and $5,000 in 2006, with amounts adjusted for inflation in 2007 and after. Older workers who take full advantage of the increased contribution limits and catch-up contributions will save significantly more than those who invest in taxable accounts or limit their contributions to pre-2002 tax law limits. (more…)

The treatment of investment risk probably is the least satisfactory area in the establishment of investment objectives. In spite of all the work published on risk in the investment literature of the past several years, risk tolerance often is not specified in setting investment objectives and investment performance measurement. Sometimes, statements of risk are made in general terms (e.g., the fund should not suffer a loss in any designated period) or a maximum tolerable decline in asset value is specified. Such specifications of risk are very difficult for an investment manager to deal with. (more…)

Corporate sponsors are taking a harder look at their employee benefit plans. Clearly the Employee Retirement Income Security Act of 1974 (ERISA) contributes to this increased attention by formally requiring that pension plans be run solely in the interests of plan participants and by making plan fiduciaries personally liable for any breach of fiduciary duties. The growth in pension plan asset and retirement assets also draws the attention of senior management; when a plan’s size exceeds the assets of the largest corporate division or perhaps the total market value of the outstanding corporate stock, (more…)

The typical employee benefit management structure for a relatively large company would be similar to that illustrated in picture bellow. All these functions are necessary but many may be performed by the same person on the corporate staff if the size of the corporation or the plan does not warrant so elaborate a structure. Since the passage of ERISA, the ultimate responsibility for the plan rests with the named fiduciaries, who are responsible for carrying out the provisions of the governing instrument of the plan solely in the interests of plan participants and for the exclusive purpose of providing benefits to them and defraying reasonable administrative expenses. (more…)

As the text thus far has broadly and frequently stated, you need to know the details of your employer’s plan. Generally, you have two routes to follow.

The first and most direct route is to contact your benefits office. In the institutions with which we have worked, admittedly a small cross sample, we found that the staff can outline and explain your employer’s plan. Equally importantly, they can provide you with the latest version of the plan. Whenever changes occur in the plan, you should be notified as an employee. (more…)

Determining the characteristics of a corporate pension plan falls roughly into two parts:

1. What total compensation package can the company afford?
2. Given this constraint, what employees will be covered and what benefits will they receive?

The answer to the question of what the company can afford requires a balancing of the long-term interests of the shareholders and the employees. (more…)

Defined contribution plans have several characteristics involving the following factors:

• Some plans allow you to defer a portion of your compensation and contribute it to the retirement fund, (more…)

If we look at defined benefit plans, it has a slumped down popularity among business owner in recent years. It is more like traditional pension plans where the plans are altogether financed by the employer. Annual contributions founded on actuarial computations involving employer’s years of service and salary are set aside for employees. (more…)

It’s not just choosing the right retirement investment that helps 401k grow faster. It’s keeping your hands off them too. Most plans permit you borrowing from 401k against the account balance for compelling reasons. Those all-too-compelling reasons may reduce the amount you’ll be able to draw someday from your 401k. (more…)