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FYI: Retirement

Monday, July 11, 2011
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SEAL Act Would Make it Harder to Tap 401(k)s

In a bipartisan effort, two senators created a bill that would make it harder for workers to take loans from their 401(k) retirement accounts, and make it easier to pay them back.

The Savings Enhancement by Alleviating Leakage in 401(k) Savings Act of 2011 by Sen. Herb Kohl, D-Wis., and Sen. Mike Enzi, R-Wyo., could drastically reduce the number of people taking loans from 401(k)s by providing flexibility to loan-repayment hardship tax rules, reducing the cap on loans someone can take and limiting practices that provide easy access to retirement funds.

In 2010, 28 percent of people with 401(k)s had a loan outstanding against it, according to Chicago-based Aon Hewitt. That's an all-time high, and up from 26 percent in 2009 and 23 percent in 2008.

Surely, the economic downturn forced people tap into retirement accounts, but economists and personal-finance strategists have said for years that the strategy is risky.

"The gap between what Americans will need in retirement and what they will actually have saved is estimated to be a staggering $6.6 trillion," says Kohl. "While having access to a loan in an emergency is an important feature for many participants, a 401(k) savings account should not be used as a piggy bank."

Enzi agrees that the retirement system needs improving.

"Recent studies have shown," he says, "that money saved in retirement accounts sometimes leaks out of the system and is never put back."

Employers Slow to Bring Back Matches; Employees Don't Care

Nearly one-third (30 percent) of employers are planning to reinstate previously eliminated or reduced matching contributions during 2011, while 42 percent don't have plans to reinstate their match this year. That's according to the 7th Annual Retirement Plan Survey, conducted by Grant Thornton and Plan Sponsor Advisors (both based in Chicago) and Drinker Biddle & Reath in Philadelphia.

In last year's study, 53 percent of the employers had not decided whether to return to previous contribution levels and 33 percent had no plans to do so.

Interestingly, employees aren't fazed. Despite cutbacks by both plan sponsors and participants, 83 percent of plan sponsors reported that either very few, or none, of their employees had expressed concerns about their retirement readiness.

"Considering the issues facing participants," says Jennifer Flodin, chief operation officer at Planned Sponsor Advisors, "including reduced employer contributions, decreased plan balances, economic uncertainty and regulatory/administrative updates such as Roth conversions, participants may not be aware that they need to be concerned."

Families Reluctant to Talk Retirement

They say communication can bring families together but it certainly isn't bringing them closer to retirement. The Survey on Generational Retirement Perspectives by Indexed Annuity Leadership Council, based in Des Moines, Iowa, finds that adults are reluctant to talk about retirement.

The study finds that more than one-third of adults (36 percent) say they never talk to their parents -- who are not yet retired -- about retirement plans. Similarly, 34 percent of parents talk to their adult children (18-plus) about their financial retirement plans once a year or less. 

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While it's important to discuss retirement with an accountant, financial adviser or a representative from a company retirement plan, Wendy Waugaman, CEO and president of American Equity in Des Moines, Iowa, says, it's also important to have those conversations at home.

"Actively taking control of your financial future can provide peace of mind for you and your family members," she says. "Families that engage in an open dialogue about retirement and retirement planning are taking the first step toward taking control."

The State of Retirement in the Recovery

Slowly, but surely, the economic recovery inches on.

In a study by St. Louis-based investment firm Edward Jones, 15 percent of respondents say their retirement portfolios already have recovered from the financial downturn, compared with 12 percent in 2010.

One-quarter (25 percent), however, say they are not currently saving for retirement, an increase from 16 percent in 2010.

The survey also shows that, although 54 percent of Americans' retirement portfolios have not recovered from the economic downturn, that number is improved from a year ago when 67 percent responded that their portfolios had not yet recovered.

The telephone survey of 1,009 U.S. adults found that Americans 55 to 64 years of age saw their retirement savings increase significantly compared with the previous year. Twenty-one percent said their retirement savings were back to normal levels in 2011, compared with 14 percent of those in the same age bracket in 2010.

Americans who expect their portfolios to recover in more than three years also decreased to 21 percent, compared to 29 percent in April 2010.

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