The purpose of this paper is to analyze the article, "More Employees On Their Own" by Albert B. Crenshaw. This paper will discuss the effects that the volatile financial market, specifically the 401(k) plan, is having on industries and their employees.
A 401(k) plan permits employees to choose to defer a portion of their wages on a pretax basis. The plan must be part of a qualified profit-sharing plan, a stock bonus plan, a pre-ERISA money purchase pension plan, or a rural cooperative plan. The ability of the employer to "match contributions" has generated interest in the plan at all employee levels. This is important because 401(k) plans include strict tests that require lower paid employees to defer compensation under the plan, in proportion to highly paid employees. (401k.com, 2003)
The major benefit to employees is that they are not taxed currently on the portion of compensation that is placed in the plan.
An employee has the option of choosing between cash or future benefits on a year-to-year basis. This protects an employee when faced with unexpected immediate financial needs. (401k.com, 2003)
In the beginning, the 401(k) plan looked appealing to most employees. Workers could put money aside and their employer might even contribute. The money, to be put away in mutual funds or savings accounts, was the employee's, for better or worse. (Crenshaw, 2003) "But three years into the worst bear market since the Great Depression, many workers are finding that the risks of investing have not died - they were only sleeping." (Crenshaw, 2003)
Now, in the wake of liability risks, stock market volatility, and potential legislation, United States' employers are reassessing their 401(k) plan priorities for 2003. Additionally, those who participate in the plan are being hit hard. Employees have learned a...