The Evolution Of The 401k

The evolution of the 401K over the years has turned it into a fairly decent retirement

savings plan for about 72 million individuals who participated this 2010. Workers enrolled in this retirement plan may fare better in 2011 because of it, as experts predict it may be one of the best savings venues for many employees. While there some changes to the plan may not have exactly been beneficial for participants, there have been changes that enabled them to get closer to a more comfortable retirement. Here are some professional findings on the evolution of the 401K and how it affects workers who contribute:

Labor Department Disclosure Rules

A new rule issued by the Employee Benefits Security Administration in October took effect December 20 of this year. The rule about 401K fee disclosures required the fiduciaries of these plans to publicize more information about the expenses and charges associated with the plan, including plan fee statements per quarter, as well as data on the investment costs of participants.

According to Principal Financial Group senior vice president Greg Burrows, the new rule benefits companies and workers. He says that employers can compare services and the associated fees more easily and helps equalize the market for those who provide and manage these retirement savings accounts. While this may allow participants access to potentially better services at lower costs, the relevant paperwork may also increase, and affect participants negatively.

Wells Fargo retirement director Laurie Nordquist says that the recently released regulations surrounding the disclosure of plan fees may benefit workers who participate, as long as the information and presentation of this data is useful for the latter. On the other hand, she explains, if the regulations come with a considerable increase in information and documentation, workers might not absorb or understand the info and use it to streamline their plans and related investments and here, the new rule may become disadvantageous.

Roth Conversion

The Small Business Jobs and Credit Act, enacted into law last September 27, contains some provisions that can ultimately affect the retirement savings of the worker who participates in retirement plans. One provision permits 203B, 401K, and federal 457 plan contributors to place their account balances (pre-tax) into a Roth retirement account at the onset of 2011. This move, called the in-plan conversion option or rollover, allows workers to avoid rolling over their balances into an external Roth IRA. Aside from the evolution of the 401K through the EBSA rule, owners of the said retirement plans can accumulate more for a stable nest egg after taxes because of this option.

by: Katherine Smith

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