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401(K) Plans


There are many economic issues facing the nation today.
While some are extremely important in determining how the
economy is balanced, others are not. Although this is true,
that does not necessarily make these lesser important
issues obsolete. Take, for example, the recent issue of
corporate leaders matching contributors to the 401(k) plan
with company stock, instead of with cash. Though this is a
relatively National issue, it still greatly affects a large
number of people in foreign areas as well as you and me.
Because of this effect on such a large number of people, it
is necessary that this issue be discussed, as will happen
within the next few paragraphs.
 In the way that a 401(k) stock matching plan is set up;
timing is everything. In a basic 401(k) plan employees put
forth a set amount of dollars (usually pre-determined
personally by the employee) before taxes are withheld This
portion of the employee's paycheck is put toward his or her
retirement. What some companies prefer to do in order to
make the 401(k) plan more attractive for employees, is to
match each employee's investment in the plan by a certain
percent. Here is where the problem comes in. Though some
companies match contributors either with cash or with a
direct credit to the plan, other companies match with
corporate stock. According to Richard Sasanow, a former
assistant of public communications at Ernst and Young,
"many experts consider this to be one of the riskiest
investments for a 401 (k)-but may be worth it if you think
your company has a great future." (Sasanow, 45) A recent
survey shows that 18 percent of all companies made their
matching contr!
ibutions this way. Now for small, fast-growing businesses
this would not seem as much of a risk since these
companies' stock are generally on the increase. But for
some large corporations, this is a great risk for employees
since a lot of their retirement money is now based on how
well the company does. 
 Some say that because contribution matching is now based
on how well the company does, then employees will strive to
do a more efficient job in order to increase the overall
stock price of the company, which, in turn, will increase
the amount of retirement they will receive. Now the problem
of timing comes in again. Mr. Jim Davenport, a Staff Writer
for The State Newspaper uses a good example: "An imaginary
worker for an oil company was looking forward to retiring
at the end of the week. His 401(k) is fat and has been
getting fatter thanks to company stock. On Tuesday, an oil
tanker has a major spill and the stock market trashes the
company's stock. By Friday, retirement may look a lot less
attractive." Because that employee had no role in the oil
spill, it is safe to say that the idea of employees working
harder to increase stock prices is unattainable because of
outside forces that employees have no control over. Now
this employee is hurt even though stock prices !
have been generally rising over the past few years.
 Sasanow agrees: "In the case of companies like PanAm,
Eastern Airlines or Carter Hawley Hale, which all went
bankrupt, employees with company stock got the double
whammy because their pension funds went bust and so did
their stock. 
 Though it may seem that employees are virtually powerless
against how their company might invest their money, this is
not altogether true. There are rules set forth from the
Internal Revenue Service and the U.S. Department of Labor
that control how employers construct their 401(k) plans.
These rules require companies that run their own retirement
plans to act in the best interest of the employee. This
seems like the employees have an advantage over the
employers now. But what the rules don't say is how specific
the company must be when acting in the best interest of the
workers. There are obviously some specifics that must be
compromised should a court case come about. 
 There are many important economic issues that face the
lives of each American each day. Some are large and some
are small. No matter what the size, it is important to take
into account that these issues affect a large number of
people, no matter what the situation. The recent issue of
corporate stock matches is one that has affected a lot of
people both locally, nationally, and internationally. Based
on the information gathered, it is safe to say something
needs to be decided on how to handle company matches on
401(k) plans. The best decision would be to leave it up to
the court to decide what is in the best interest of the
people and have every company and employee abide by those
precedents. It seems that is the only fair way.
Sasanow, Richard. The 401 (k) Book. New York: Henry Holt
and Company, 1996.
Davenport, Jim. The State. May, 1995


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