"You could have saved Enron employees nearly $1 billion!"
Morningstar Journalist about my Fundamentals of Investing
Instruction
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No
Nonsense Finance eBook
Investment Expert for Litigation
(Allocation, Diversification, Risk)
In 1984, there were about 7.5 million participants in about 17,000
plans with total assets of $94 billion and an average account balance of
$12,200. By 2000, there were 40 million participants with average account
balances of about $50,000 and total assets of $2 trillion. The plans have
escalated exponentially as companies have reverted to defined contribution
plans from defined benefit plans. Some companies provide incentive matching
contributions and therefore makes these extremely powerful retirement vehicles.
But they are not without risk.
Further, proper investing is NOT simply maximizing a 401k. You need
to consider ROTH IRA's as well as index investing on a taxable
basis.
If you are an employer who is not providing education on
diversification et al, you are
potentially liable for your plan since, without the knowledgeable insight
on the fundamentals of investing, they are virtually clueless when purchasing
stocks and funds and you are responsible for it. Further, I can "guarantee"
that neither you nor your employees has even a remote idea what
diversification truly means in this economic environment.
* Employees with 30% of their defined-contribution assets in company
stock have an efficiency measure of only 64% when compared against an index
of the S&P 500. At a level of 50%, the efficiency measurement drops to
39%. Defined-benefit plans are restricted to holding no more than
10% in company stock. At that level, the efficiency measure for average risk
is in the 90% range.
Krishna
Ramaswamy
The list below includes all articles and specific links in alphabetical
order with accompanying description. The listings in the column to the right
are separate sections for articles and links
ARTICLES AND COMMENTARY:
This is a listing of some of the concerns noted on the
problems in 401k's over the last four years. This "column" is continuously
expanded to include current analysis and statistics noted in the investing
arena.
401k CALCULATOR LINK:
You can input all the numbers- salary reduction,
employer match, salary increase, etc. and various investment returns and
get an immediate calculation on the value of a 401k plan at retirement (or
whenever). You need to recognize however that if you understand basis, you
may want to put in only enough to get your matching contributions. Too much
can be categorically the wrong way to fund retirement and your estate.
401k CALCULATOR
LINK 2: This calculator helps you plan for the future. Simply fill in
your paycheck and 401k numbers. You can adjust the rate of return, contribution
percentage and current plan balance to determine the value of your money
in the future.
401K
CALCULATOR LINK 3:
401K
CALCULATOR LINK 4 Never assume that you get the
same answers from the different calculators. Try them all.
401K
COMPANY INVESTMENT CHOICES LINK: A formal research paper addressing
the adequacy of company offerings. A little technical in spots but the
conclusions are understandable. This paper analyzes the adequacy and
characteristics of the choices offered to 401K-plan participants for over
400 plans. We find that, for 62% of the plans, the types of choices offered
are inadequate
401k
GROWTH LINK: This Smart Money java based pages allows you to put in current
earnings, rates of returns, employee match, etc., and determines how much
you will have age your selected retirement age. It then visually shows you
how long the money will last. It has its imperfections but provides a good
overview
401k COUNCIL OF AMERICA LINK: The
PSCA is the non-profit association credited with the inclusion of Section
401k in the Internal Revenue Code. It has current articles on legislation
and more that participants should review.
401k
PLAN FEE EMPLOYER LINK: Understanding fees and expenses is important
in providing for the services necessary for an employer's plan's operation.
As a consumer, you need to know what is required
401k
PLANS FOR SMALL BUSINESS LINK: The US Department of Labor’s Employee
Benefits Security Administration (EBSA) and the Internal Revenue Service
(IRS)
401k LINK: One of the most
extensive coverages of 401k plans on the Internet by Tim Younkin
401k LINK 2: Another
good site covering all the elements of this retirement account.
401k
MONEY DISTRIBUTION LINK: What happens to your money when you put
it into a 401k account.
401k PLAN DIVERSIFICATION
2001 LINK: (pdf) The Employee Benefit Research Institute (EBRI) along
with the Investment Company Institute (ICI) worked together to gather extensive
data to answer this question in their EBRI/ICI Participant-Directed Retirement
Plan Data Collection Project . The data reflects 401k plans in 1999. 72%
stocks, (19% Employer Stocks), 10% Guaranteed Accounts, 7% Balanced Funds,
5% Bonds, 4% Money Market Accounts, 1% Other
401k QUESTION
LINK: Questions from employers and plan administrators on the design,
drafting and administration of 401k plans.
401k QUIZ
LINK A 28 question quiz covering many different aspects of 401k
plans. It includes my quiz above
401(k)
RESOURCE GUIDE LINK: IRS guidelines
404(c) REGULATIONS AND COMMENTARY : The
government has provided some guidance for 401k plans under section 404(c).
I have taken major sections of this code and provided some objective commentary-
most of which delves into the area of the fiduciary liability of the company
to make sure its employees are made aware of the risks and rewards of investing.
Admittedly, the code is open to certain interpretation, but as an instructor
for many years and having seen presentations by some groups touting their
investment expertise, it is my opinion that the offerings are sophomoric-
certainly not as comprehensive as they should be- and that many companies
will retain liability for inept instruction on the significant and necessary
areas of investing, particularly as they address risk.
404c
LINK For those of you that want to see the entire code for
verification, here it is. Very few people will ever view this- but the true
success of your retirement plans may be in this lengthy regulation.
Part of the marketing of this WEB page is to focus on the seminars
and instruction I have done for over 18 years. I can provide some of the
most comprehensive instruction on
the areas of investing and planning that will properly address the areas
of risk and reward, etc. and stand up to any legal scrutiny at a later date.
And to review the areas I investigate on an ongoing basis, see monthly
newsletter, MOODY'S
REVIEW.
2002
DEFINED CONTRIBUTION SURVEY LINK:
CONTRIBUTIONS: Here is a chart that
provides statistics on what type and number of funds employers offered, matching
contributions, etc.
EMPLOYER STOCK and RETIREMENT: One of the
most critical tax reviews for employees who have employer stock in a 401k
or other tax deferred pension plans. One of the most unique tax positions
for employees that is rarely communicated- primarily because neither the
employer nor plan sponsor has a clue.
FUND ANALYSIS: This is a short
form analysis I did for a corporation that was using solely managed funds
and high fees and relates directly to the two areas of concern listed above.
I believe the review clearly identifies the corporation's future
liability.
HIDDEN
FEES IN QUALIFIED RETIREMENT PLANS LINK A very competent
and comprehensive article by Matthew D. Hutcheson, Independent Pension Fiduciary.
INDIVIDUALk
PLAN LINK: "The Individualk plan takes advantage of the existing laws
found under section 40lk of the Internal Revenue Code as well as the new
laws created by pension reform legislation to create a unique business retirement
plan for owner-only businesses."
SOLE
401k ESTIMATOR LINK: Put in your age and income and it will quickly
calculate the amount that can go into various retirement accounts.
STATISTICS INDEX
LINK: The "Hewitt 401k Index is the first and only index of its kind
to track the market confidence level and investment activity of 401k participants
at large corporations exclusively." Good statistical numbers
All of this should be of utmost interest to employers and employees
since they lay the ground work on any potential problems that are now occurring
and that will be the basis of lawsuits in the future. The extensive bull
market had unquestionably eliminated some of the negative comments regarding
risk, high fees, etc. But 2000 has changed that and you are seeing increased
arbitrations and SEC complaints on the breaches of fiduciary duty to clients.
It will impact the 401k market as well.
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