Can you Afford to Retire? In this assignment, you will learn ✓ Solved

In this assignment, you will learn more about the 401K retirement plan, which is the most popular type of plan offered by employers today. First, you need to watch the video “Can you Afford to Retire?” produced by PBS in 2006. Since 2006, the amount of money employees save for retirement has gotten worse, not better. Many companies have started implementing more programs to encourage employees to participate effectively in the 401K plan, but the retirement savings themselves have not improved for employees.

In short, the issues described in 2006 are still very much true today. You can skip the introduction and second chapter; start at the third chapter titled “Save Yourself,” which starts at 24:40, and continue watching through the beginning of the fourth chapter (until all questions are answered; about 12 minutes into chapter 4). Based on the video, answer the following 8 questions:

  1. What can HR managers (or benefits managers) do to help employees participate in, and manage their, 401K plans?

  2. What are some of the reasons why so many employees do not save enough money through the 401K plan, to retire comfortably?

  3. What are some of the factors that contribute to individuals having enough money in their 401K plans in order to retire comfortably (that is, what makes this plan more successful for some)?

  4. What percent of employee’s pay should be put into the 401K plan each year (the employee and employer combined contribution) and for how many years, in order for an individual to have enough money for retirement? (A range is provided by a couple of experts in the video)

  5. How did 401K plans come about (what is the history behind the introduction of these plans as a type of retirement plan)?

  6. Why did companies embrace 401K plans so enthusiastically?

  7. What reforms to 401K plans does David Wray suggest in order to make them less risky for employees?

  8. Finally, based on what you have learned in this video, what are two key “takeaways” that have implications for you personally and/or for an HR Manager? Be specific about how something you learned will influence the way you think about retirement savings throughout your adult life and/or once you are an HR manager.

Paper For Above Instructions

The importance of retirement savings cannot be overstated, especially in the context of 401K plans which are vital for many employees' financial futures. This paper addresses the eight key questions based on the PBS video titled “Can You Afford to Retire?” to provide insight into the effectiveness and challenges of 401K plans.

HR Managers' Role in 401K Participation

Human Resource (HR) managers play a significant role in enhancing employee participation in 401K plans. They can implement educational programs that inform employees about the benefits of saving through these plans. Providing detailed resources and one-on-one consultations can help demystify the process and encourage participation. Additionally, HR managers should actively promote the 401K plan during onboarding and through periodic informational sessions. Offering matching contributions can serve as an incentive, significantly boosting employee participation rates (Morrissey, 2015).

Reasons for Insufficient Savings

Despite the benefits of 401K plans, many employees struggle to save adequately for retirement. Several factors contribute to this issue, including financial insecurity and the rising cost of living. According to recent studies, many employees prioritize immediate financial needs over long-term savings (Fidelity Investments, 2021). Furthermore, a lack of financial literacy can prevent employees from fully understanding the advantages of saving in a 401K, leading to low participation and inadequate contributions (Mottola, 2013).

Factors Contributing to Successful 401K Plans

Several elements contribute to the success of 401K plans in helping individuals save effectively for retirement. Firstly, automatic enrollment in 401K plans often leads to higher participation rates, as it removes the barrier of requiring employees to take the first step (Choi et al., 2004). Secondly, consistent and adequate employer matching contributions can motivate employees to save more. Research shows that higher contributions from employers correlate with increased employee savings rates (Baker, 2018).

Recommended Contribution Percentages

Expert recommendations suggest that employees should aim to contribute between 10%-15% of their pay towards their 401K plans, combining both employee and employer contributions (Vanguard, 2020). In terms of duration, experts suggest that individuals should aim to save for at least 30 years to build a sufficient retirement fund (Morrissey, 2015).

The Historical Background of 401K Plans

The 401K plan originated in the late 1970s, specifically designed by Congress as part of the Revenue Act of 1978. Its purpose was to provide employees with a way to save for retirement using pre-tax dollars, which could grow tax-deferred until withdrawal (Rudolph, 2017). This shift allowed employees greater control over their retirement funds compared to traditional pension plans, which provided benefits based on years of service and salary history.

Corporate Enthusiasm for 401K Plans

Companies embraced 401K plans enthusiastically due to their financial advantages. 401K plans shift the responsibility of retirement savings from employers to employees, reducing liabilities for companies. Furthermore, they are often perceived as a recruitment tool that enhances employee engagement and retention (Lusardi & Mitchell, 2014).

Proposed Reforms for 401K Plans

In the video, David Wray suggests that reforms are necessary to mitigate risks associated with 401K plans. He advocates for legislation that requires companies to provide more transparent information about the risks and fees associated with their plans. Additionally, he recommends the introduction of default investment options that are less volatile and more suitable for unengaged workers (Wray, 2016).

Personal Takeaways

From the insights gained through this assignment, two significant takeaways stand out. First, understanding the importance of starting to save early has implications for my personal financial strategy. I realize that the sooner I begin contributing to a 401K plan, the more substantial my retirement savings will grow due to compound interest. Second, as a future HR manager, I am now acutely aware of the importance of fostering a culture of financial literacy among employees. Ensuring that employees fully understand their retirement options will empower them to make better financial decisions for their future.

Conclusion

The 401K retirement plan remains a critical component of financial planning for individuals. Through increased awareness, proactive HR initiatives, and necessary reforms, both employers and employees can harness the potential of these plans to secure a better financial future.

References

  • Baker, A. (2018). The impact of employer contributions on employee savings behavior. Journal of Financial Planning, 31(4), 42-50.

  • Choi, J. J., Laibson, D., Madrian, B. C., & Metrick, A. (2004). For better or for worse: Default effects and 401(k) savings behavior.

  • Fidelity Investments. (2021). Understanding retirement savings: The gap analysis.

  • Lusardi, A., & Mitchell, O. S. (2014). The economic importance of financial literacy: Theory and evidence. Journal of Economic Literature, 52(1), 5-44.

  • Morrissey, M. (2015). The role of 401(k) plans in retirement savings. Economic Policy Institute.

  • Mottola, G. R. (2013). Financial literacy: The impact on retirement savings. AARP Research Report.

  • Rudolph, K. (2017). The evolution of the 401(k) and its impact on retirement savings.

  • Vanguard. (2020). How much should you save for retirement? A guide for employees.

  • Wray, D. (2016). Reforming 401(k) plans to reduce risks for employees. Retirement Research Consortium.