Fighting your lame of­fice re­tire­ment plan

Austin American-Statesman Sunday - - FRONT PAGE - Su­san Tom­por

With lots of in­di­vid­ual op­tions out there, you don’t have to let bad ben­e­fits ruin your re­tire­ment.

One year ago, con­sumers woke up and found that hack­ers had one heck of a field day with their So­cial Se­cu­rity num­bers and other in­for­ma­tion in a mas­sive data breach at Equifax.

Equifax’s screw-up would for­ever leave mil­lions that much more vul­ner­a­ble to ID theft. Face it, it’s not like you can change the locks on the side door. Once hacked, your So­cial Se­cu­rity num­ber is out there in­def­i­nitely.

But be­gin­ning Sept. 21, a new fed­eral law will help con­sumers stop in­trud­ers in their tracks. The three big credit re­port­ing agen­cies — Equifax, Ex­pe­rian and Tran­sUnion — will be re­quired to of­fer you a credit freeze, free. Such a freeze will re­strict ac­cess to your credit file and help stop crooks from open­ing credit cards in your name.

Also start­ing Sept. 21, par­ents across the U.S. will be able to get a free credit freeze for chil­dren un­der age 16. A child’s credit file would be frozen un­til the child is old enough to use credit.

The new law is a key step for re­gain­ing some con­trol over our data. But there’s a not-so-small chal­lenge ahead: Many have no idea what a credit freeze is and how it works, ac­cord­ing to new re­search by a team at the Univer­sity of Michi­gan School of In­for­ma­tion in Ann Ar­bor.

Amaz­ingly, some con­sumers wrongly think that a credit freeze stops them from us­ing their own credit cards.

So what ex­actly is a credit freeze? A credit freeze stops many but not all busi­nesses and oth­ers from re­view­ing your credit file. The con­sumer who signs up for a vol­un­tary credit freeze is given a PIN — that you want to keep track of — to use if you want to un­freeze that credit file to ap­ply for new credit.

Un­der the new law, if a con­sumer asks for a freeze on­line or by phone, the credit re­port­ing agency has to put the freeze in place no later than the next busi­ness day, ac­cord­ing to a Fed­eral Trade Com­mis­sion blog. If the con­sumer wants to lift the freeze — for ex­am­ple, to fi­nance a new phone or fridge — that has to hap­pen within an hour.

“It’s just as­sumed that peo­ple know what a credit freeze is,” said Flo­rian Schaub, a Univer­sity of Michi­gan as­sis­tant pro­fes­sor of in­for­ma­tion, whose re­search fo­cuses on se­cu­rity and pri­vacy is­sues. But Schaub, 35, said too of­ten “credit freeze” is just swept into the jar­gon in the in­dus­try — jar­gon that many con­sumers do not un­der­stand. Many times, peo­ple only fully un­der­stand a credit freeze once they’re vic­tims of ID theft and told that a credit freeze is es­sen­tial.

Some con­sumers had a hard time un­der­stand­ing the term “fraud alert” as well. Some thought the alerts were when a bank or credit union would text you when fraud­u­lent ac­tiv­ity was de­tected on your ac­count.

In­stead, plac­ing a fraud alert on your credit file ac­tu­ally means you’re adding a red flag, if you will, to your credit re­port to alert a lender to ver­ify your iden­tity be­fore mak­ing a loan. Un­der the new law, a fraud alert will last a year, in­stead of 90 days. If a vic­tim of iden­tity theft, you’d still be able to ex­tend a fraud alert for seven years.

But all that jar­gon — freezes, locks, alerts — can con­fuse con­sumers who are al­ready over­whelmed in their fi­nan­cial lives.

Schaub said the credit bu­reaus don’t have much in­cen­tive to care­fully ex­plain things like credit freezes or fraud alerts. Af­ter all, their busi­ness model is to col­lect and ag­gre­gate our in­for­ma­tion to pro­vide to lenders who want to sell us loans.

“We, as cit­i­zens, are not their cus­tomers,” he said. “What makes them money is shar­ing our credit re­ports with other busi­nesses.”

As av­er­age 401(k) bal­ances reach record highs, how does yours mea­sure up?

For those work­ing in small busi­nesses, chances are the news isn’t great. Big com­pa­nies typ­i­cally are the ones with the most in­vest­ment choices, the low­est fees and the rich­est match.

A con­gres­sional bill and a re­cent White House di­rec­tive aim to give a leg up to smaller plans by mak­ing it eas­ier for them to band to­gether, com­mand bet­ter pric­ing and ease ad­min­is­tra­tive bur­dens. The mea­sures would make other changes, in­clud­ing al­ter­ing the rules around re­quired min­i­mum dis­tri­bu­tions to re­flect longer life ex­pectan­cies.

While the RMD re­prieve will likely get uni­ver­sal ap­proval from wealth­ier re­tirees who would rather not pay taxes on dis­tri­bu­tions they don’t ac­tu­ally yet need, the idea for smaller re­tire­ment plans has some sig­nif­i­cant caveats.

It would smooth the way for un­re­lated groups of com­pa­nies to form a sin­gle 401(k) plan. Cur­rently, among other ob­sta­cles, these em­ploy­ers would face dis­qual­i­fi­ca­tion of their plans if one mem­ber of the group is found to be vi­o­lat­ing com­pli­ance rules.

But jump­ing into a pool with other em­ploy­ers raises a host of ques­tions about who is ul­ti­mately re­spon­si­ble for mak­ing sure the plan is work­ing in em­ploy­ees’ best in­ter­est, notes Al­li­son Brecher, gen­eral coun­sel for Vest­well, a new plat­form that pro­vides 401(k) ser­vices. The com­pany con­tends that tech­nol­ogy is al­ready strip­ping sig­nif­i­cant costs out of plan de­sign and main­te­nance, with­out the need for bundling par­tic­i­pants.

Polic­ing the plans is a valid con­cern, but Ali­cia Mun­nell, di­rec­tor of the Cen­ter for Re­tire­ment Re­search at Bos­ton Col­lege, is skep­ti­cal that many small busi­nesses will even get that far.

“We’ve done a lot to make cheap plans for small busi­nesses, and the nee­dle hasn’t moved. A lot of these firms are just so fo­cused on get­ting up and run­ning, and their work­ers are say­ing they just need cash,” mak­ing it very dif­fi­cult to get plans started, she said.

She does think the cur­rent plans’ back­ing by the fi­nan­cial ser­vices in­dus­try could help carry the ideas fur­ther than pre­vi­ous pro­pos­als, in­clud­ing an Obama ad­min­is­tra­tion pro­gram to en­cour­age sav­ings through Trea­sury bonds (now scrapped).

But you don’t have to wait for any of these ideas to come to pass.

If you’re a small busi­ness owner, look into whether a SIM­PLE-IRA, a Sim­pli­fied Em­ployee Pen­sion Plan (SEP-IRA) or a self-em­ployed 401(k) plan might work for your sit­u­a­tion.

If you work for a com­pany with­out a re­tire­ment plan, open a Roth IRA or a tra­di­tional IRA. They have lower con­tri­bu­tion lim­its than work­place plans, but it’s a start. Just be aware you’ll need to save more in tax­able ac­counts to make up the dif­fer­ence.

How much to save if money is par­tic­u­larly tight? Bor­row a page from big em­ployer plans by start­ing with a small per­cent­age of pay and ramp­ing that up each year or each time your pay in­creases.

The big ad­van­tage large plans have over small ones — other than a com­pany match — is their abil­ity to au­to­mat­i­cally es­ca­late con­tri­bu­tions, mak­ing savers barely no­tice they are putting away more each year. Repli­cate that small piece, and you’re on your way.

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