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401(k) Plans

Satisfactory Essays
401(k) Plans

There are many economic issues facing the nation today. While some are

extremely important in determining how the economy is balanced, others are not.

Although this is true, that does not necessarily make these lesser important

issues obsolete. Take, for example, the recent issue of corporate leaders

matching contributors to the 401(k) plan with company stock, instead of with

cash. Though this is a relatively National issue, it still greatly affects a

large number of people in foreign areas as well as you and me. Because of this

effect on such a large number of people, it is necessary that this issue be

discussed, as will happen within the next few paragraphs.

In the way that a 401(k) stock matching plan is set up; timing is

everything. In a basic 401(k) plan employees put forth a set amount of dollars

(usually pre-determined personally by the employee) before taxes are withheld

This portion of the employee's paycheck is put toward his or her retirement.

What some companies prefer to do in order to make the 401(k) plan more

attractive for employees, is to match each employee's investment in the plan by

a certain percent. Here is where the problem comes in. Though some companies

match contributors either with cash or with a direct credit to the plan, other

companies match with corporate stock. According to Richard Sasanow, a former

assistant of public communications at Ernst and Young, "many experts consider

this to be one of the riskiest investments for a 401 (k)-but may be worth it if

you think your company has a great future." (Sasanow, 45) A recent survey shows

that 18 percent of all companies made their matching contributions this way.

Now for small, fast-growing businesses this would not seem as much of a risk

since these companies' stock are generally on the increase. But for some large

corporations, this is a great risk for employees since a lot of their

retirement money is now based on how well the company does.

Some say that because contribution matching is now based on how well the

company does, then employees will strive to do a more efficient job in order to

increase the overall stock price of the company, which, in turn, will increase

the amount of retirement they will receive. Now the problem of timing comes in

again. Mr. Jim Davenport, a Staff Writer for The State Newspaper uses a good

example: "An imaginary worker for an oil company was looking forward to

retiring at the end of the week. His 401(k) is fat and has been getting fatter

thanks to company stock.
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