
HP are being mean
Only a matching contribution to 401(k)?
IBM, for example, now pay for romper suits, finger paints, and Peppa Pig videos for all their new employees. Until they “retire” them on age grounds once they start school.
HP Inc has been accused of improperly using funds set aside for retired workers. The lawsuit [PDF], filed on behalf of plaintiff Paul Hutchins in a US federal court in northern California, claims HP has taken forfeited funds – money the IT giant pledged to contribute to workers' 401(k) pots but unclaimed because employees left …
Most decent companies in the US don't have vesting periods on their 401k matches specifically because it's not worth the hassle. If I was offered a job at a company that had a vesting on the 401k match, I'd question how decent their other benefits are. Like is their medical insurance awful too.
The ACA was great as originally passed. I happen to live in Massachusetts which had already passed GOP governor Romney's "Romney Care", which the ACA was modeled on and was itself originally proposed by a GOP think tank. (Romney Care is still the system in MA because it's better than the original ACA.) The present ACA (outside of Massachusetts) has been by & large dismantled by the GOP because the Democrats were the ones who got a GOP idea passed at the National level, and the GOP is the party of whiners devoid of solutions who eat their own young ( and oppose their own schemes if the Dems take a liking to any GOP schemes).
If the lawsuits are anything to go by IBM retires employees when they get to their late 30s. No biggie since the under-40s for the most part don't really have any notion of the future, its below their event horizon.
Of course, come retirement age when they're looking at their somewhat thinned down Social Security (which they'll be able to claim in a few short years) they're going to find that working at the local hardware store is not only hard work for their age group but doesn't pay that well.
Yet (I assume) they still pay the rest of the remuneration package, or is that like training (remembering EDS) reclaimable from the job hopping employee…
To me the person is simply deferred salary, thus, and especially in the case of defined contribution schemes, the employer contribution belongs to the employee from the outset.
Years back, ie. when I started work in the 1980s, joining the company (defined benefits) pension scheme, required 2 years of service, ie. Getting a pension was a perk that had to be earned rather than as now - a mandatory component of an employees renumeration. The case gives a clear illustration of just how far behind and unenlightened the US is with respect to employee pay.
Perhaps Treasury, Labor, and/or IRS have it wrong. The quoted ERISA section seems clear to me. To allow companies to use "forfeited" funds for their own purposes incentivizes them to treat employees like chattel, getting them to leave or just firing them before the vesting period. Don't companies get tax advantages for offering a 401k plan? So they get the tax advantages of matching funds, then get to keep the forfeited match and use it for extra CEO compensation or whatnot? Nice scam, brought to you buy paid-for Congress members, no doubt.
IMO forfeited funds should be used for paying expenses and fees, allowing unforfeited funds vested by current employees to grow bigger, faster. And there should be a limit as to how long vesting periods can be; one year seems a good max.
On the other hand, for defined benefits schemes HMRC instructed employers to take a contribution holiday because schemes were seriously over-funded.
Then Brownomics introduced rampant inflation to increase the liabilities and low interest rates to decrease funds' ability to pay (interest declared here) and defined benefits schemes were closed to new members because they were now grossly underfunded. Whoever made the original decision would, of course, remain oblivious to this as HMRC pensions, like those of all Civil Servants (interest also declared here) was, at least back then, essentially a Ponzi scheme underpinned by the taxpayer.
You must be a yongun then. 1980s, the telecom I worked for had a 5 year vest, 20 percent per year. I lucked out as the company was bought about 3-4 months after I was hired and enrolled, and all existing emoloyees were immediately vested as part of the deal. Next company had a 1 year vest, and I didn't really pay attention to it at my current company.
As far as I can tell, nobody stands to gain if this case decides that the forfeited amounts can't be used the way HP was using them. HP loses, because it needs to leave that money locked in the account until it finds something else it was allowed to spend it on, but just because HP has to leave the money there doesn't mean that anyone else could get it. This raises two questions in my mind. The first is why the people suing HP here are doing it, because presumably they wouldn't gain from having the rule changed. The second one is whether that will make it more difficult for them to prove that they were harmed, which is often a requirement to pursue a case.
The best answer I have to this question is that, if HP was not allowed to use the forfeited money for most things, maybe they'd change the plan to avoid forfeiting it and people employed at that time would benefit from the new plan. While possible, this doesn't make much sense to me as HP would end up spending exactly the same amount of money if they lock it away or give it to employees, so nothing says that they have to stop using a vesting schedule if they lose this case. Maybe I'm missing something simple here.
From my (albeit brief) reading of the case, what the plantiff's want is that the money that is forfeited, enters the pot for all remaining employees benefits. Not that HP can effectively claim it back and pay less into the retirement pot.
There are good grounds for this, since most retirement pots run on the verge of not having enough to pay all of the required contributions. So HP cutting it's own contributions by skimming these forfeited contributions, hurts everyone else in the fund. Making HP continue to pay the full amount of their contributions, and adding forfeited funds to the pot, would help the financial situation of the retirement funds, and ensure that they can actually make all of the payouts they need to.
HP and the other funds, that skim this off the top, are basically just hurting their own retirement funds, but because those are usually spun off as a completely separate company, then that's fine by the companies. If it goes tits up, it's only the Employees who lose out, not HP itself, so that ok...
I don't think it works that way because 401K accounts aren't a pension which pays out specific amounts. They are tax-advantaged individual investment accounts. An employee who contributes a certain amount can invest and withdraw from that money subject to certain legal requirements, and someone who put less into it simply has less to work with. Since there is no common pot, the forfeited funds can't be put in one unless they stop using 401K accounts altogether.
Ahh if that's the case then my apologies. I'm not familiar with 401k accounts specifically, only regular retirement style funds as practiced in the UK, Aus and the EU.
If what you say is true, perhaps a better solution would be that the forfeited funds should be used to pay the fund management fees, so that everyone else can earn a little bit of extra interest (and HP keeping contributing what it's supposed to!). If it's anything like some of the retirement funds I have to deal with the Management fees chew up an excessive amount of the interest you actually earn from your investments...
"I'm not familiar with 401k accounts specifically, only regular retirement style funds as practiced in the UK, Aus and the EU."
In broad terms, they are likely the same. The details are likely not understandable for the US when using common sense.
If I were just entering the workforce now with a freshly laser printed degree, I'd not start a retirement savings account. The fees and penalties for touching that money before retirement can make it a net loss. I'd be happier to see a mortgage matching plan. Companies might want to consider that as people that own a home are more likely to stay put than those that rent. I expect that it all comes down to what the company might get in tax savings doing one thing over the other if both are useful to attract and retain the people they want to hang on to.
"So a 401K account is a pension scheme with only one member/beneficiary…"
Pretty much. There's more self-direction involved as well, as the single beneficiary gets to decide what they invest it in and how much they take out, subject to a variety of restrictions. As I understand all the options, I think it's comparable to the UK's SIPP accounts with an employer connection or Australia's Super funds.
I was not being totally clear.
I should have linked to the point: “ the money that is forfeited, enters the pot for all remaining employees benefits”
As a 401k scheme is a single pot, there is only one remaining employing …
However, having read a little more, I suspect the intent is not quite so direct. Basically, if the company has committed to paying in 4% of pensionable pay then they need to pay this into the pension scheme, they can’t use vested monies (already in the scheme) to reduce the amount they pay into the scheme. Thus the scheme will accrue vested monies which aren’t allocated to an individual. The intent seems to be that these monies effectively become a profits distribution across the schemes members.
From what I heard from LebenUSA and John Oliver the 401(k) was MEANT to be purely for the employees benefit, and it was expected to end up in a fund which pays reasonable interest. Corporations using it for other purposes was never the original intention which is, from my point of view, malpractice. Well, I'm on another continent, but such tiny steps towards better social security in Unites States of America are needed.
You can, of course, correct me if I am wrong here.
(I avoiding using the abbreviation USA in the first mention without clarifying what in means, since I don't want to accidentally blame the Ulster Scots Agency)
HP and other companies take no direct benefit from these forfeited funds. They can use them to offset employer contributions, which directly benefit current employees, or to offset management fees of the funds. This lawsuit is as baseless as it could be.
They'd be better off suing that a 3-year vesting period is too long. 1 tear is the standard of most companies.
Consider yourself corrected!
It's not enough that we get shitty 401(k) "retirement" plans in the US, or that companies will tend to lay off a bunch of people right before the vesting period, but now we have them basically gambling with the money that should be set aside for retirement programs. I already know the answer to this, but is there any depth that top executives won't sink to?
Still boggles the mind that your retirement fund and health insurance are linked to your employer. Much prefer the Australian system of superannuation, where 10 or 11% of your wage is automatically put into your retirement fund and invested immediately. And if you put in more on top of that percentage, the gov matches it. And most jobs are advertised as wage Plus super.
And health insurance is optional (although you get taxed for NOT having it). The medicare system is at least free, although the waiting lists can suck for some operations.