Trouble with 401(k) Plans

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Graduation is behind you and it’s your first day on the new job. Your boss reminds you to stop in at the benefits department where you will be expected to make decisions regarding health insurance, dental and/or vision insurance, sick leave, vacation days and even retirement benefits! Most of the “insurance and leave type benefits” will be no brainers, but will you be prepared to make a decision about saving for your retirement?? One of your choices might be a 401k plan.

In the book Personal Finance Turning Money Into Wealth, Chapter 16 Retirement Planning discusses various retirement plans – what they are and how they work. A 401k plan is basically a tax-deferred retirement plan with both the employer and the employee making contributions. Sounds simple enough, but a recent nationwide survey commissioned by Schwab Retirement Plan Services reported in a press release by Schwab titled “The State of 401k Investing – New Schwab Survey” found that 52% of the 1,004 survey participants “find explanations of their 401K investments more confusing than explanations of their health care benefits.”

Discussion questions:

1. Read though the MSN Money article titled “Why Workers are Botching Their 401k Investments” along with the Schwab report “The State of 401k Investing – New Schwab Survey.” What were some of the positive findings in this survey? What were some of the concerns that came out of this survey? Be prepared to discuss this in class.

2. In the Schwab survey, reported in “The State of 401k Investing – New Schwab Survey,” one of the questions asked was if you were given a $5,000 bonus, would you save it in your 401k or take it in cash now? How would you answer that question? How do you think the respondents answered?

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