CRS Report Reviews Retirement Plans

Source: Congressional Research Service

401(k) Plans and Retirement Savings: Issues for Congress (PDF)

Over the past 25 years, defined contribution (DC) plans--including 401(k) plans--have become the most prevalent form of employer-sponsored retirement plan in the United States. The majority of assets held in these plans are invested in stocks and stock mutual funds, and the decline in the major stock market indices in 2008 greatly reduced the value of many families' retirement savings. The effect of stock market volatility on families' retirement savings is just one issue of concern to Congress with respect to defined contribution retirement plans.

This report describes seven major policy issues with respect to defined contribution plans: 1. Access to employer-sponsored retirement plans. In 2007, only 61% of employees in the private sector were offered a retirement plan of any kind at work. Fifty-five percent were offered a DC plan. Only 45% of workers at establishments with fewer than 100 employees were offered a retirement plan of any kind in 2007. Forty-two percent were offered a defined contribution plan.

2. Participation in employer-sponsored plans. Between 20% and 25% of workers whose employer offers a DC plan do not participate. Workers under age 35 are less likely than older workers to participate.

3. Contribution rates. On average, participants in DC plans contributed 6% of pay to the plan in 2007. The median contribution by household heads who participated in a DC plan in 2007 was $3,360. This was just 22% of the maximum allowable contribution of $15,500 in that year.

4. Investment choices. At year-end 2007, 78% of all DC plan assets were invested in stocks and stock mutual funds. This ratio varied little by age, indicating that many workers nearing retirement were heavily invested in stocks and risked substantial losses in a market downturn like that in 2008. Investment education and target date funds could help workers make better investment decisions.

5. Fee disclosure. Retirement plans contract with service providers to provide investment management, record-keeping, and other services. There can be many service providers, each charging a fee that is ultimately paid by participants in 401(k) plans. The arrangements through which service providers are compensated can be very complicated and fees are often not clearly disclosed.

6. Leakage from retirement savings. Pre-retirement withdrawals from retirement accounts are sometimes called "leakages." Current law represents a compromise between limiting leakages from retirement accounts and allowing people to have access to their retirement funds in times of great need. In general, borrowing from a 401(k) plan poses less risk to retirement security than a withdrawal. Pre-retirement withdrawals can have adverse long-term effects on retirement income.

7. Converting retirement savings into income. Retirees face many financial risks, including living longer than they expected, investment losses, inflation, and possible large expenses for medical care and long-term care. Annuities can protect retirees from some of these risks, but few retirees purchase them. Developing polices that motivate retirees to convert assets into a reliable source of income will be a continuing challenge for Congress and other policymakers.

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Health Insurance Premiums Continue Upward Trend

Source: Congressional Budget Office

Private Health Insurance Premiums and Rate Reviews (PDF)

Health insurance premiums have been trending up, while the value of coverage has trended down. Available data indicate that both administrative and medical costs continue to rise, but the rate of
growth in these expenses slowed between 2008 and 2009. The data also suggest that the rise in medical costs is primarily attributable to the price of services, not increased utilization. 

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IRS Provides I-Phone App

Source: IRS

FTC Offers Tips on Making the Most of Your Auto Warranty

Source: Federal Trade Commission

Can a dealer void your car’s warranty if you have someone else do routine maintenance on the vehicle?  The answer is no, and the Federal Trade Commission wants to make sure consumers know it.

Under federal law, it is illegal for manufacturers or dealers to refuse to honor a warranty or to deny coverage simply because someone other than the dealer did work on the car.  And dealers must be able to demonstrate that improper repair caused the damage that they refuse to cover.

The FTC, the nation’s consumer protection agency, offers these and other tips for American consumers to help them make smart decisions and get the most out of their auto warranties.  For example, if an independent mechanic improperly replaced a belt and the engine is damaged as a result, a manufacturer or dealer may only deny responsibility for fixing the engine under the warranty after demonstrating that the improper belt replacement – rather than some other defect – caused the engine damage.  However, the warranty would still be in effect for other parts of the car.

The same is true of ‘aftermarket’ parts made by a company other than the vehicle manufacturer or the original equipment manufacturer:  The manufacturer may not deny warranty coverage unless it can show that the aftermarket equipment caused the need for repairs.
Other tips from the FTC include:

• Read the warranty that came with the car, or check the “Owners” section of the manufacturer’s website.
• Be aware of when the warranty period ends, and get any problems that arise checked out beforehand.
• Service the car at regular intervals, following the manufacturer’s recommended service schedule.
• Keep all service records and receipts, regardless of who performs the service.  This includes oil changes, tire rotations, belt replacement, new brake pads, and inspections.  These receipts can be used to prove that the vehicle was properly maintained.
• Complain if you believe yourwarranty claim has been denied unfairly.  Speak to a supervisor at the dealership, then go to the manufacturer or another dealer.  Consider filing a complaint with the state Attorney General, local consumer protection office, local Better Business Bureau, or the FTC.

The FTC works to prevent fraudulent, deceptive and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint or get free information on consumer issues, visit ftc.gov or call toll-free, 1-877-FTC-HELP ( 1-877-382-4357 ); TTY: 1-866-653-4261 . Watch a new video, How to File a Complaint, atftc.gov/video to learn more. The FTC enters consumer complaints into the Consumer Sentinel Network, a secure online database and investigative tool used by more than 1,800 civil and criminal law enforcement agencies in the U.S. and abroad.

The Economics of the Dependent Exemption

Source: Urban Institute

Who Benefits From the Dependent Exemption?

Elaine Maag

Abstract

The dependent exemption reduces taxable income by a fixed amount ($3,650 in 2010) for each qualifying child in the family. Benefits depend on a family's marginal tax rate. Low-income families receive a tax reduction of up to $365 per exemption compared to high income families that receive a tax reduction of $1,278 per exemption. Benefits flow mostly to families with relatively high incomes. In 2010, TPC estimates 1.5 percent of benefits will accrue to families in the lowest income quintile while 57.1 percent of benefits will accrue to families in the top 40 percent of the income distribution.

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Social Security: Lifetime Benefits and Costs

Source: Urban Institute

Social Security and Medicare Taxes and Benefits Over a Lifetime

C. Eugene Steuerle, Stephanie Rennane

Publication Date: January 03, 2011

How much will you pay in Social Security and Medicare taxes over your lifetime? And how much can you expect to get back in benefits? It depends on whether you're married, when you retire, and how much you've earned over a lifetime.

These tables provide estimates of the lifetime value of Social Security and Medicare benefits and taxes for typical workers in different generations at various earning levels. The "lifetime value of taxes" is based upon the value of accumulated taxes, as if those taxes were put into an account that earned a 2 percent real rate of return (that is, 2 percent plus inflation). The "lifetime value of benefits" represents the amount needed in an account (also earning a 2 percent real interest rate) to pay for those benefits.

View the tables: tables in PDF format | tables in Word format

The New $100 Bill

Source: U.S. Treasury