If your 203 (k) matching plan is dollar for dollar on the first 3% of your salary, then get ready for a cut. More and more companies are adopting “automatic registration” for 203 (k) plans, new research has given them ammunition to cut the match 100%.
This research, from Harvard and Yale, estimates that when automatic registration is in place, the cup match creates only a “modest” dropout rate – about 5 to 11 percent. This will give employers an incentive to reduce this cost benefit.
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The correspondence is a little tricky. Mathematically, a dollar-for-dollar match on the first of 3% of the pay is the same as a 50-cent on the dollar match on the first of 6%. But the 50-cent match will cost the employer less because not all employees will carry off up to 6%. The dollar-for-dollar match on the first of 3% of payroll benefits almost everyone, especially the low payers who have more trouble deferring by more than 3%.
The new auto shelter registration regulations also give employers a rationale for cutting this match dollar for dollar. So, if you have been doing a 100% match on your 203 (k) contribution, up to 3% of your salary, then start telling your HR department how important it is to you.
Although researchers are calling for a 5 to 11 percent drop in the “modest” workforce, it will hurt those who are able to save for retirement. Low paid employees make a bigger personal sacrifice to contribute to this plan and can get a lower benefit if the match is changed from 100% of the first 3% to 50% of the first 6%.
It would also hurt young employees who are just starting to invest. By reducing their contribution at the beginning, a cut in the game will force them to save more and / or work longer, since from the beginning is the best way to accumulate retirement savings.
Ironically, the conclusion of the researchers draw is that a company could make a “non-contingent” contribution – give the contribution to all eligible employees, no employee contribution must, instead of a match . This would be beneficial for the lowest paid employees. It would also be the same “incentive” approach that many employers abandoned in favor of 203 (k).
But why does this decision have to be presented as an all or nothing? Either the higher benefit paid to the matching contribution or the lower-paying benefit with the “non-quota” contribution. Does one company have to hurt one group to benefit from another? Maybe the approach simply reflects our division, winner-take-all of society.
Which refinancing option is best for you?
There are not quite as many loan programs as there are borrowers, although this may sometimes seem like the case! We will help you qualify for the best loan program that suits your needs. But, there are some things to consider from the start.
Do you refinance mainly to reduce your rate and your monthly payments? So, the best option could be a low fixed rate loan. Maybe you currently have a fixed rate mortgage with a higher rate or maybe you have an ARM – floating rate mortgage – where the interest rate varies. Even if it is low now, unlike your MRA, when you qualify for a fixed rate mortgage, you lock this rate down for the duration of your loan. This can be beneficial if you do not plan to move in the next five years or so. On the other hand, if you plan to move in the next five years, an ARM with a low initial rate may be the best way to reduce your monthly payment.
Do you refinance mainly to cash a portion of your own equity? Maybe you want to make home improvements, pay for your child’s university tuition, and make the trip of your dreams, whatever. You will then want to qualify for a loan higher than the balance of your current mortgage. If you have your current mortgage for a few years and / or a mortgage with a higher interest rate, you may be able to do it without increasing your monthly payment.
You want to cash a part of the equity to consolidate other debts? Good idea! If you have to own it in your home to get there, pay other debts at higher interest rates than your mortgage – credit cards, home equity transformation loans, mortgage loans, auto loans, student loans, for example – means you could save hundreds of dollars a month.
Do you want to increase your own equity faster and pay off your mortgage sooner? Consider refinancing with a loan of shorter duration, such as a 15-year mortgage. Your payments will be higher than those of a longer term loan, but in return you will pay much less interest and accumulate equity more quickly. If you have your current 30-year mortgage in recent years and the balance is relatively low, you may be able to do it without increasing your monthly payment – you could even save! For example, say you got a 30-year mortgage from $ 150,000 to eight per cent several years ago. Your payment is approximately $ 1,100, excluding taxes, insurance, etc. If your balance is now $ 130,000, you could get a 15-year mortgage at six per cent and have an almost identical monthly payment. This is a great option for those whose primary goal is not to save on their monthly payment, but to accumulate equity and pay for their home faster.