Pension Protection Act and National 401(k) Day Offer Opportunities to
Evaluate Plans
SAN FRANCISCO, Sept. 5 /PRNewswire-FirstCall/ -- The president's recent
signing of the Pension Protection Act has consumers asking questions about
how the new law will affect their 401(k) and other retirement plans. As
part of its commitment to help Americans become better investors and to
mark National 401(k) Day on September 8, Charles Schwab & Co., Inc. is
offering a series of "Top Tips" to help consumers maximize their
participation in employer- sponsored retirement plans.
"The Pension Protection Act affects millions of Americans who are
relying on employer-sponsored retirement plans as the primary source of
their retirement income," said Steve Patterson, vice president of Schwab
Corporate & Retirement Services. "The new legislation should be a catalyst
for workers to take a close look at their company retirement plans to
ensure they are maximizing their opportunities to save."
Many of the provisions of the new law focus on how companies can act to
help their employees save more for retirement, including the ability to
automatically enroll employees into a 401(k) plan unless they actively
choose not to participate. However, the law also features a number of
important changes that affect how employees can take more control of their
financial futures through their companies' plans.
Here are five tips for how participants in employer-sponsored plans can
make the most of their 401(k):
1. Get more advice. The Pension Protection Act expands the ways in
which employees can receive specific advice on their 401(k) plans,
including how and where to invest. Employees should check with their
benefits departments to learn more about their advice options or to
request the addition of advice services.
2. Save more and catch up. Thanks to the new law, several 401(k)
features that were set to expire at the end of 2010 have become
permanent, including the $15,000 annual contribution limit-which
will continue to increase each year-and the additional $5,000
"catch-up" contribution for those over age 50. Employees who
haven't increased their contribution amounts lately should act now,
says Patterson.
3. Ask about the Roth. In addition to the contribution limits, the Roth
401(k) also was set to expire at the end of 2010. In a Roth 401(k),
payroll deductions are made on an after-tax basis, which means
employees pay taxes on their contributions before they go into their
plans. When employees finally do withdraw money, all their
contributions and investment earnings are tax-free, provided
specific withdrawal qualifications are met - so the Roth 401(k) is a
good choice for those who think they will be in a higher tax bracket
when they retire. Now that the Roth 401(k) has been made permanent,
employees should ask their HR departments to consider offering both
a traditional and a Roth 401(k) option.
4. Don't stock up on stock. The new law gives employees more freedom
to decide whether or not to hold publicly traded company stock in
their 401(k) plan. Many plans must now offer employees at least
three investment options besides employer stock and employees can,
at any time, choose to sell company stock purchased with their own
elective contributions. After three years of employment, they can
trade company stock received through employer contributions.
Employees who hold company stock bought with contributions made
prior to January 1, 2007 will be allowed to divest those shares over
three years. Patterson says that this new provision should cause
consumers to examine their current portfolios to make sure they're
not overly invested in company stock, or a specific industry or
asset class. He adds that target or lifestyle funds can be an
excellent option for those who don't have time to actively manage a
portfolio but want to make a single choice that invests in a
diversified portfolio.
5. Rollover inherited assets. Under the new law, beginning in 2007
individuals who inherit 401(k) assets from parents, domestic
partners or others can roll over those assets to IRAs without paying
taxes. Previously, this benefit was available only to individuals
who inherited 401(k) assets from their spouse. Employees should
take advantage of this change, and take a moment to double-check
their own beneficiaries.
For more information on National 401(k) Day, visit
http://www.psca.org/401kday. Schwab created the employee education materials on
this site for the Profit Sharing/401(k) Council of America.
About Charles Schwab
The Charles Schwab Corporation (Nasdaq: SCHW) is a leading provider of
financial services, with more than 330 offices and 6.8 million client
brokerage accounts, 527,000 corporate retirement plan participants, 178,000
banking accounts, and $1.3 trillion in client assets. Through its operating
subsidiaries, the company provides a full range of securities brokerage,
banking, money management and financial advisory services to individual
investors and independent investment advisors. Its broker-dealer
subsidiary, Charles Schwab & Co., Inc. (member SIPC, http://www.sipc.org ),
offers a complete range of investment services and products including an
extensive selection of mutual funds; financial planning and investment
advice; retirement plan and equity compensation plan services; referrals to
independent fee-based investment advisors; and custodial, operational and
trading support for independent, fee-based investment advisors through its
Schwab Institutional division. The Charles Schwab Bank, N.A. (member FDIC)
provides banking and mortgage services and products. The company's other
operating subsidiaries include U.S. Trust Corporation (member FDIC) and
CyberTrader(R), Inc. (member SIPC, http://www.sipc.org ). More information
is available at http://www.schwab.com. (0806-7662)
SOURCE Charles Schwab
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Related links:
http://www.schwab.com
CONTACT:
Lindsay Tiles of Charles Schwab,
+1-415-667-3997, or lindsay.tiles@schwab.com
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