More protests erupt over 401(k) changes


Monday, September 18th 2000, 12:00 am
By: News On 6


By Pamela Yip / The Dallas Morning News

Things seem to be going from bad to worse, as far as critics of major retirement legislation in Congress are concerned.

More protests have erupted over the Retirement Security and Savings Act of 2000, which recently cleared the Senate Finance Committee and is headed for a vote by the full Senate.

The bill would raise annual contribution limits to 401(k) retirement savings plans from $10,500 to $15,000 and to Individual Retirement Accounts from $2,000 to $5,000.

Supporters of the bill said it would increase retirement savings among workers and make long-overdue inflationary adjustments to contribution limits.

But critics of the legislation say recent changes to the bill would sanction abuses that sometimes occur when corporations convert conventional pension plans to cash-balance plans.

Cash balance plans have drawn the ire of many employee groups, who say they ultimately cut the retirement benefits of older workers, compared with traditional pension plans.

The bill would permit employers to omit early-retirement benefits and early-retirement subsidies from a cash-balance plan benefit formula, employee groups said.

"It's bad, it's really bad," said Lynda French of Austin, a retired IBM employee and spokeswoman for the IBM Employee Benefits Action Coalition, which formed last year after the company converted to a cash-balance plan.

A member of the Senate Finance Committee said critics have misinterpreted the intent of the legislation.

"A lot of their criticisms are probably criticisms with what they think the bill is doing, rather than what the bill is actually doing," said the staffer, who didn't want to be identified.

Don't spend inherited money quickly

If you've recently inherited money, don't make any major financial decisions for a while.

Take some time to focus on what you want to do with money, whether investing it, paying off debts or buying a new home, said the Financial Planning Association, which represents financial planners.

If you inherit cash, put it in low-risk money market accounts or certificates of deposit for the time being.

That advice is not as simple as it sounds. A recent survey by Oppenheimer Funds found that 40 percent of baby boomers who have received at least a $50,000 inheritance made a financial decision in less than a week.

"While the financial side requires patience, attention to detail and professional consultation, the emotional side of inheriting is often the more difficult and more deeply rooted challenge," the association said. "Frankly, it's not emotionally easy for many people to inherit."

For one thing, unless it's a gift made during the donor's lifetime, inheritance typically comes upon someone's death and is therefore associated with grief.

"This may be compounded by the fact that people don't like to talk about money, even among family members," the group said.

There's also guilt. Some people may feel guilty because they've received money they never earned, and they also may be ill at ease with how the money came to them.

"The emotional stress of inheriting has caused some inheritors to get rid of the money as quickly as possible, either by disclaiming the inheritance, giving it away or spending it," the financial planning organization said. "Others have been known to sit on their wealth and continue living their current, more modest lifestyle, sometimes for decades."

Retirement security on voters' minds

Retirement security is foremost on the minds of voters, according to a survey by the American Council of Life Insurers in Washington, D.C.

Voters want the government to provide them with incentives to accumulate their own assets and create their own safety nets for their retirement years, the group said.

"People don't just view retirement security as a personal issue," said Carroll A. Campbell Jr., president and chief executive of the life insurers council. "An overwhelming majority of voters – 86 percent – say retirement security is also an important national issue."

The concern crosses political party lines. Almost two-thirds of voters, regardless of their political affiliation, say they would be more likely to vote for a candidate who addresses ways to help people achieve a more financially secure retirement, the council said.

Voters want political leaders to develop policies and incentives to help them take greater personal responsibility for their retirement, the survey said.