The problem of underfunding has lately been the topic of the day, and some experts believe that this predicament may evolve and even worsen. It seems that 401k plans are subject to testing that confirms that higher company officers, do not get returns that are better than the ones employees receive.
The economic recession however, may lead some companies to terminate the plans, since they will not be able to afford the plan contributions. This trend has already started, however experts believe that if the recession continues for a certain length of time, the problem will worsen.
Apart from this, it seems that some tight for cash companies, are withholding the employees 401k contributions, and instead of transferring the money into the employee’s fund, they are using it as operational capital.
Employees should take control of their plan by asking for statements, confirming the current balances, and that their contributions are actually being directed to their 401k plan.
From the employer’s side, 401k plans that offer the right features should work as a good tool for employee retention. There are various plans available, that all offer various features and can provide maximum benefit for the employee, accompanied by the lowest funding costs.
Options available are outlined below:
• Safe Harbour 401k plans – These plans are directed to high earning individuals, since they allow the maximum possible contribution, without the risk of failing the ACP test. This is why they are called safe harbor.
• New Comparability Plans – These plans are directed towards companies who would like to retain some form of caution in contribution funding, while amplifying the contributions of owners or high earning individuals.
• Defined Benefit Plans – These plans define the amount of money that individuals will be getting upon retirement age. These plans are better suited for smaller businesses.
Reference: http://www.credit.com/news/economic-crisis/2009-03-24/recession-causing-many-401ks-to-be-underfunded.html
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