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Individual Retirement Accounts - A Primer (Hardcover)
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Individual Retirement Accounts - A Primer (Hardcover)
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Individual retirement accounts, or IRAs, hold more assets than any
other type of retirement vehicle. In 2004, IRAs held about $3.5
trillion in assets compared to $2.6 trillion in defined
contribution (DC) plans, including 401(k) plans, and $1.9 trillion
in defined benefit (DB), or pension plans. Similar percentages of
households own IRAs and participate in 401(k) plans, and IRA
ownership is associated with higher educational and income levels.
Congress created IRAs to provide a way for individuals without
employer plans to save for retirement, and to give retiring workers
or those changing jobs a way to preserve retirement assets by
rolling over, or transferring, plan balances into IRAs. Rollovers
into IRAs significantly outpace IRA contributions and account for
most assets flowing into IRAs. Given the total assets held in IRAs,
they may appear to be comparable to 401(k) plans. However, 401(k)
plans are employer-sponsored while most households with IRAs own
traditional IRAs established outside the workplace. Several
barriers may discourage employers from establishing
employer-sponsored IRAs and offering payroll-deduction IRAs to
their employees. Although employer-sponsored IRAs were designed
with fewer reporting requirements to encourage participation by
small employers and payroll-deduction IRAs have none, millions of
employees of small firms lack access to a workplace retirement
plan. Retirement and savings experts and others told the authors
that barriers discouraging employers from offering these IRAs
include costs that small businesses may incur for managing IRA
plans, a lack of flexibility for employers seeking to promote
payroll-deduction IRAs to their employees, and certain contribution
requirements of some IRAs. Information is lacking, however, on what
the actual costs to employers may be for providing
payroll-deduction IRAs and questions remain on the effect that
expanded access to these IRAs may have on employees. Experts noted
that several proposals exist to encourage employers to offer and
employees to participate in employer-sponsored and
payroll-deduction IRAs, however limited government actions have
been taken. The Internal Revenue Service and Labour share oversight
for all types of IRAs, but gaps exist within Labour's area of
responsibility. IRS is responsible for tax rules on establishing
and maintaining IRAs, while Labour is responsible for oversight of
fiduciary standards for employer-sponsored IRAs and provides
certain guidance on payroll-deduction IRAs, although Labour does
not have jurisdiction. Oversight ensures the interests of the
employee participants are protected, that their retirement savings
are properly handled, and any applicable guidance and laws are
being followed. Because there are very limited reporting
requirements for employer-sponsored IRAs and none for
payroll-deduction IRAs, Labour does not have processes in place to
identify all employers offering IRAs, numbers of employees
participating, and employers not in compliance with the law.
Obtaining information about employer-sponsored and
payroll-deduction IRAs is also important to determine whether these
vehicles help workers without DC or DB plans build retirement
savings. Although IRS collects and publishes some data on IRAs, IRS
has not consistently produced reports on IRAs nor shared such
information with other agencies, such as Labour. Labour's Bureau of
Labour Statistics National Compensation Survey surveys
employer-sponsored benefit plans but collects limited information
on employer-sponsored IRAs and no information on payroll-deduction
IRAs. Since IRS is the only agency that has data on all IRA
participants, consistent reporting of these data could give Labour
and others valuable information on IRAs.
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