Advanced Personal Finance

Yes, it’s only the beginning of October, but I’ve already seen Christmas trees and decorations for sale in stores. In that same spirit, here’s a brief look at what’s in store for 401(k)s in 2008.

2008 401(k) Contribution limits

The maximum you can contribute in a 401(k) (not including employer match, if any) in 2008 is $16,000. Add $5,000 if you’re over 50.

Safe Harbor plans

January 2008 is the first time companies with automatic enrollment can offer what’s called a Safe Harbor plan. This page gives all the gory details, but the gist of it is that employer matches in this type of plan (and they must have a match) must be automatically vested. Why would a company do this? It’s not benevolence. It allows highly compensated individuals to get around caps on their contributions when not enough worker drones contribute to the plan.

These safe harbors have to automatically enroll employees in the 401(k) (unless they opt out) at at least 3% of their salary. Contributions then have to be increased by 1% per year until the employee is putting in 6% to 10% of their salary.

Default investment selection

As part of the Pension Protection Act that generated a lot of changes in the 401(k), the U.S. Department of Labor is expected to outline rules for making a ‘target date’ fund the default investment selection for workers in plans. Obviously, you can change that to whatever you want, but even if someone never makes any active decisions, they’ll be on the right track for retirement saving.

Investment advice

A provision that I’m dubious about begins in 2008. Starting then, plan providers can offer in-person investment advice. Supposedly, to keep the bias out of it, this advice is to be based on a computer model or given by a fee-only planner. Who programs the computers is left unsaid.

At any rate, I’ll be interested to see how these advisors will deal with the fact that many employer matches are in company stock. I strongly believe you should sell most or all the company stock in your 401(k) as soon as you possibly can. I wonder if these advisors will recommend the same thing.

Photo credit: Sequim Washington Daily Photo

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This entry was posted on Tuesday, October 2nd, 2007 at 8:31 am and is filed under 401(k). You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.