Re: "with the political power and all the time to wield it"
Hi Deibutfeif,
I believe our retirement laws need to be changed so workers are treated "percentage-wise" equally and fairly, and I think the laws need to be changed so more workers are encouraged to save more money, especially the disadvantaged worker (i.e. who doesn't have a 401k plan). I believe it is unethical for congress to give themselves $1MM pension plans, while not allowing the average American (who may not have a 401k plan) to contribute more than $2,000 per year.
Here's what our congressional leaders have done for this country, whose founders ironically created the slogan, "MEN are created equally."
Well, PEOPLE certainly are not treated equally by congress, and this impacts their retirement:
1) Congress created IRA's which have contribution limits of $2,000 ($2,500 spousal). Translated: workers who do not have 401k plans are disadvantaged, and are not equally encouraged to save money for retirement. For example, 401k limits are $10,500/yr and that's 5X's more than an IRA. Why is congress discouraging workers, who do not have 401k plans, from saving significantly for their retirement? Why isn't the IRA limit equal to the 401k limit? Why treat disadvantaged workers even more unfairly?
2) Meanwhile, congress created Keogh's which allow up to 25% contributions. Typically Keogh's are used for lawyers and doctors in private practise, whose salaries are higher than the average worker. Translated: congress continually gives advantages to higher earning individuals when it comes to saving for retirement (which is ironic, because demographically, this group doesn't need as much help as the first group in #1).
3) Congress created SEP-IRAs which are generally used by consultants and less-advantaged sole proprietorships. The contribution limits on the SEP-IRA is approximately ~13%. Consultants cannot use the (better) Keogh plan whose contribution limit is better and higher (25%). Why? Because a Keogh plan can be disqualified if the consultant doesn't contribute every year to the plan.
4) Congress created SIMPLE-IRA plans to help startups. Yeah, right. Guess what folks? Here's the catch: SIMPLE-IRA's *cannot* be converted (nor rolled over) into 401k plans. If SIMPLE-IRAs are rolled into 401k's, they have polluted their 401k. Ouch. So, of course, a startup cannot use a SIMPLE-IRA plan, since it does not allow for an upgrade path into a 401k plan. Also, the SIMPLE-IRA limits are approximately $6,000 which is less than a 401k (and that's not good). Again, congress penalizes and discourages retirement savings for the smaller guy or gal.
5) If you're a startup with fewer than 30 people, guess what happens to your 401k plan? It is essentially limited to only a combined contribution of 15% because the "total accumulated employee contributions into the 401k plan cannot exceed 15% of the payroll." So, if employee #30 decides *not* to contribute into his/her 401k plan, then the other 29 employees may contribute more money into their 401k plans (i.e. a bit more than 15%). Now, in mid-size to large companies, where a lot of people don't contribute to their 401k plan, this allows the others to contribute much more on average. So, mid-size companies can have contribution limits as high as 20% (or the maximum $10,500, whichever is reached first). Meanwhile, startups are generally limited to a maximum *combined* employer and employee 15%. Again, the smaller guys/gals get penalized; disadvantaged from retirement savings.
Note: "combined" means both employee + employer contributions.
6) Startups do not receive any significant tax advantage by contributing to their employees' 401k plans. I'm told by our 401k firm, that we are their *only* startup which is contributing to employees' 401k plans. This firm works with a very large national, established financial brokerage firm. Fortunately, we can contribute to the employees' 401k plans because I can dip into another area of benefits (which aren't as important) to make up for this, so it balances out exactly, which is necessary to satisfy any VC or shareholder, and to remain competitive. However, it bugs me deeply to hear so few startups are contributing to their employees' 401k plans, which through matching contributions, can act as a great incentive/encouragement for people to save for retirement.
As an aggregate, there are more employees at small businesses than there are at large corporations.
7) If none of this bugs you, i.e. how congress doesn't adequately encourage retirement savings for the disadvantaged worker, then let me translate (how unethical it is to further disadvantage the already disadvantaged workers, and how inappropriate it is to be inequal in the retirement laws) into a language which many might understand:
This will hurt anyone who has saved sufficient money, because:
- there are most likely more people in the "disadvantaged" pool than there are in the "financially advantaged" pool.
- they might yield more voting power than you, by their shear numbers.
- they might have the power to implement a wealth tax.
So, even if you don't care for the disadvantaged worker, or how unfair it is to allow a worker to contribute no more than $2,000 into their retirement plans, I'm sure one could at a minimum be motivated to care about their own wealth. So, if you care about either (and hopefully you care about both), then here's the action I would recommend:
1- encourage everyone you know to save enough for retirement
2- create spreadsheets showing how $10k (which is less than the cost of the USA average wedding) $10k for a baby (on the day they are born) is $1MM at age 65 (and yes, that's corrected for inflation too, i.e. expressed in today's dollar).
3- the power of compounded growth
4- the benefit of tax deferred savings
5- start getting vocal with congressional leaders who are in charge of our retirement laws. They have the power to encourage more retirement savings. And, the less disadvantaged worker are probably statistically the bulk of the constituents, who put you and themselves at risk.
Five years ago, I convinced someone to start saving for their retirement. I saw him five years later, when I was visiting the company he happens to work for, and he thanked me for getting him started. In 5 years, he amassed savings in the 6 digits. He said, he never would have done that, if someone hadn't shown him the benefits.
Every employee at our startup contributes to their 401k plan.
Amy J |
