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Companies get a "pat on the back" simply by having a body (SS#) attached to a retirement account. Companies, shall we say, are encouraged to get a body (SS#) on an account—this appeases the financial apparatus that companies need for future loans.
I got a puzzle for you guys: Why does a company sign on an employee for a retirement account; & contribute their own money, even though the employee signed paperwork stating that they didn’t want to participate?
I got a puzzle for you guys: Why does a company sign on an employee for a retirement account; & contribute their own money, even though the employee signed paperwork stating that they didn’t want to participate?
Let me explain what Trapper John meant by the "Safe Harbor Plan". (Trapper John....you really should have elaborated on this or not posted at all, IMO).
Companies get a tax deduction for offering 401k account. However, a problem arises in that it's usually the highest earners who do most of the contributing while many of the lower earners won't even sign up. IRS rules dictate that a plan can't be too "top heavy" (i.e. benefiting the highest earners too heavily). If a plan is deemed to top heavy, the company doesn't get the tax break for offering the 401k. So there are things that employers can do to mitigate this. One of them is automatically contributing to every employee's 401k account whether the employee signs up or not. This is known as the "Safe Harbor Plan/Rule".
A safe harbor plan is a designation under IRS/ERISA. All 401(k) plans are covered under ERISA. Every plan requires a letter of determination from the IRS. Every plan has one or more trustees. Every plan files a tax return of sorts.
If I am the trustee of a plan I am at risk. Maybe the employees make bad decisions or maybe I make bad decisions. Maybe the plan favors the high income. The goal of a safe harbor plan is risk reduction for the trustees.
I could automatically enroll every employee and offer them a match regardless of their contribution. The match would go into a conservative fund. The employee is immediately vested - there is no time restriction. If he leaves he gets 100% of the money.
Later if there is a problem the employees can't sue and claim they were gypped. Well, they can try but a safe harbor plan makes it tough.
It's as simple as it sounds - the trustees sail in a safe harbor and it's harder for them to get sunk.
Every safe harbor plan meets a few criteria and has options on a few things. My guess is we will see more plans like this in the future. The downside is returns are much lower - eliminate risk and you eliminate potential reward.
...If a plan is deemed to top heavy, the company doesn't get the tax break for offering the 401k. So there are things that employers can do to mitigate this. One of them is automatically contributing to every employee's 401k account whether the employee signs up or not. This is known as the "Safe Harbor Plan/Rule".
In other words, the employer/highest earners NEED the lower income bodies to smooth out/GET the tax credit that the US TAXPAYER is loaning the company’s 401k plan! Coincidently, the employer benefits the most, since he’s probably the highest wage earner. Bernie Madoff would be proud!
Also, & this is very important: an animosity arises when the employer has to dish out his own money to get his tax benefit that he feels the non-participating employee should be contributing to! With a little dubious imagination, the employer can construe that the employee is benefiting from a claw-forward salary increase.
This is classic crony-coercion by the employer & the higher paid employees. As I mentioned in this thread already; there’s a lot of middle/upper income welfare going on in the USA!
Quote:
Originally Posted by TrapperJohn
Every safe harbor plan meets a few criteria and has options on a few things. My guess is we will see more plans like this in the future. The downside is returns are much lower - eliminate risk and you eliminate potential reward.
In other words, to mitigate risk, 401ks will produce returns to that of CD rates of 2005. Thanks for the info TrapperJohn; I assumed you wouldn’t mind that I used your quote to get my rant across?
Last edited by DSOs; 06-05-2012 at 11:12 AM..
Reason: added comma, others
Even o mosy pensions it part of the terms of employment most often.Same with healthcare. I fact the new healthcare law does not allow employers to give contribtuion to thsoe who want to go outside the employer plan . You can;but must you have to pay the entire cost pool.Its like alot of pools includig SS;and even medciad under new ehatlcare law. At certai level of income you are forced o to medciaid and cannot joi the polls eve if you want to. its all part of fiancing the cost to meet budget rules in markup.
Those with money have this strange sense of entitlement. I have seen this weird attitude regarding people with less money even in my own family- Over the last few years I have lived with both of my daughters and with my son...They earn a good living and have ten times the amount of spendable cash than myself.
They because of their higher income assume that those with less income are their servants...In my situation I was expected to do ALL the cleaning- all the picking up after them- walking and caring for THEIR dogs.....I pay my share of the expenses...BUT they assume just like the rich that the poor or low wage earners are their slaves....If you want me to be your servant- You are going to have to pay me...I don't work for free
This attitude is pervasive in society- the rich actually are so overly entitled they believe because if they have more- the person with less should not be paid for their service- If they could get away with it- there would be no "low wage earners" There would be unpaid slaves..I have noticed this about the rich...They get a kick and an ego boost if they can screw a poor person and get service for NOTHING...
As I mentioned in my personal experience the attitude can be summed up as such "I have money- you do not- I am superior to you" - Money does not grant that kind of domination or power- You want the poor to wash your toilet- Pay them...or clean up your own mess.
Those with money have this strange sense of entitlement. I have seen this weird attitude regarding people with less money even in my own family- Over the last few years I have lived with both of my daughters and with my son...They earn a good living and have ten times the amount of spendable cash than myself.
They because of their higher income assume that those with less income are their servants...In my situation I was expected to do ALL the cleaning- all the picking up after them- walking and caring for THEIR dogs.....I pay my share of the expenses...BUT they assume just like the rich that the poor or low wage earners are their slaves....If you want me to be your servant- You are going to have to pay me...I don't work for free
This attitude is pervasive in society- the rich actually are so overly entitled they believe because if they have more- the person with less should not be paid for their service- If they could get away with it- there would be no "low wage earners" There would be unpaid slaves..I have noticed this about the rich...They get a kick and an ego boost if they can screw a poor person and get service for NOTHING...
As I mentioned in my personal experience the attitude can be summed up as such "I have money- you do not- I am superior to you" - Money does not grant that kind of domination or power- You want the poor to wash your toilet- Pay them...or clean up your own mess.
I raised them well except for one thing- I never gave them a penny to speak of- everything they get they earn...They believe as I taught them - one must take care of themselves- So when they see me not making the money I am capable of making they toss back my lesson - back in my face..
Instead of seeing my point you got personal with me...I used my kids as an example of how people view the importance and the status that money supposedly provides.
My issue was about attitude towards those with less. If a person is on a lower economic level does not mean you are to push them even lower through the leverage you might have with cash.
To make my point clear let me say-Money is just a social lubricant in life..it is not to be used to dominate or humiliate....I have known some very rich people- One family were international auto parts people- I worked as an artist on their compound...One day at lunch I sat by one of their pools...There was a little note left for a servant...it said "Do not pay the swimming instructor for the children more than 12 dollars an hour------------For God's sake..these people have billions...some instructor is going to drive all the way out there for twelve bucks? This low age earner would be working for NOTHING..
That is my point- The rich if they could would not have low wage earners - they would have NO wage earners if they could.
I raised them well except for one thing- I never gave them a penny to speak of- everything they get they earn...They believe as I taught them - one must take care of themselves- So when they see me not making the money I am capable of making they toss back my lesson - back in my face..
Instead of seeing my point you got personal with me...I used my kids as an example of how people view the importance and the status that money supposedly provides.
My issue was about attitude towards those with less. If a person is on a lower economic level does not mean you are to push them even lower through the leverage you might have with cash.
To make my point clear let me say-Money is just a social lubricant in life..it is not to be used to dominate or humiliate....I have known some very rich people- One family were international auto parts people- I worked as an artist on their compound...One day at lunch I sat by one of their pools...There was a little note left for a servant...it said "Do not pay the swimming instructor for the children more than 12 dollars an hour------------For God's sake..these people have billions...some instructor is going to drive all the way out there for twelve bucks? This low age earner would be working for NOTHING..
That is my point- The rich if they could would not have low wage earners - they would have NO wage earners if they could.
You paint with a broad brush. I was simply pointing out you know exactly how your kids got this way. Just by one teaching a child a good work ethic doesn't mean they will look down on others not as smart or successful.
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