Representative Dave Camp (R-MI) has just introduced into the House Ways and Means Committee which he happens to chair the Tax Reform Act of 2014. You can read it here. Given that the Republicans only control one house of Congress and do not control the White House, the bill has little likelihood of passing. However, it gives notice as to where the party leadership may want to take tax policy.
After I've done my skim-through of the roughly 1000 pages, I'll try to comment here if it's worthy of any such comment.
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Wednesday, February 26, 2014
Tuesday, February 11, 2014
It May Not be Politically Correct, but There are Gender Differences
It shouldn't come as a surprise to us that men and women are physiologically different. Come on now, I know my readers are smart. All of you worked this out before I said anything. But, lots of people have been surprised by this article and the FDA recommendations in it.
The FDA, for the first time, is recommending a different drug dosage for women than for men, although they go on to say that perhaps the reduced dosage is appropriate for men as well. What surprises me is not that this happened, but that it took so long to happen.
Let's consider why.
Before drugs go on the market in the US, the FDA requires that they go through extensive research and clinical trials. Those are done almost exclusively on men. Why? To quote an FDA official whose name I cannot remember, "Women are hormonally inconvenient." In other words, because women monthly have significant hormonal swings, it is much more difficult to filter out the noise in the data.
Unfortunately, this means that much of the data that we actually have collected on drug efficacy and drug interaction may be somewhat accurate for men, but it's probably less accurate for women. And, as long as I am being politically incorrect, I would hypothesize that the same efficacy and interaction deficiencies that result from gender specific studies also result from the fact that studies have generally not been filtered by data such as ethnicity and blood type.
I've not done the research, so I am just guessing. But, my guess would be that people of different ethnicities and people of different blood types (among other differences) handle different drugs differently. It just makes sense.
So, what's in the future?
I don't really know, but this is my blog, so I get to hazard a guess.
Today, one of the current trends is genome mapping. Without having any particular expertise in the field, I understand that each of us has our own individual genetic map (perhaps monozygotic twins (identical) have the same genetic map, I just don't know). Surely then, the ideal medical treatment of each of us for a specific condition is different than for anyone else and those differences are based on our genetic maps. The data to develop these new medical plans of action will be here soon. Are we going to let hormonal inconveniences get in the way of better treatment plans?
The FDA, for the first time, is recommending a different drug dosage for women than for men, although they go on to say that perhaps the reduced dosage is appropriate for men as well. What surprises me is not that this happened, but that it took so long to happen.
Let's consider why.
Before drugs go on the market in the US, the FDA requires that they go through extensive research and clinical trials. Those are done almost exclusively on men. Why? To quote an FDA official whose name I cannot remember, "Women are hormonally inconvenient." In other words, because women monthly have significant hormonal swings, it is much more difficult to filter out the noise in the data.
Unfortunately, this means that much of the data that we actually have collected on drug efficacy and drug interaction may be somewhat accurate for men, but it's probably less accurate for women. And, as long as I am being politically incorrect, I would hypothesize that the same efficacy and interaction deficiencies that result from gender specific studies also result from the fact that studies have generally not been filtered by data such as ethnicity and blood type.
I've not done the research, so I am just guessing. But, my guess would be that people of different ethnicities and people of different blood types (among other differences) handle different drugs differently. It just makes sense.
So, what's in the future?
I don't really know, but this is my blog, so I get to hazard a guess.
Today, one of the current trends is genome mapping. Without having any particular expertise in the field, I understand that each of us has our own individual genetic map (perhaps monozygotic twins (identical) have the same genetic map, I just don't know). Surely then, the ideal medical treatment of each of us for a specific condition is different than for anyone else and those differences are based on our genetic maps. The data to develop these new medical plans of action will be here soon. Are we going to let hormonal inconveniences get in the way of better treatment plans?
401(k) Plans Without Matching Contributions Will Not Allow the Masses to Retire
I read an article this morning entitled "Encouraging Savings Without a Match." The article was informative enough and it did discuss the importance of getting workers to save. It discussed how auto features (auto-enrollment and auto-escalation) will have positive effects in allowing workers to accumulate balances large enough to retire someday.
The author and her sources are correct. Auto features will help, but they are not enough.
Why not?
Suppose I am a participant in a 401(k) plan and you are my employer. Suppose that in that plan, you provide me with a fairly measly (by today's standards) match of 25 cents on the dollar for the first 4% of pay that I contribute. That's not much; you're only contributing as much as 1% of my pay, but you are motivating (note the lack of use of the non-word incentivize) me to defer at least 4% of my pay. That means that 5% of my pay will go into my account. It's also a first-year return on my investment of 25% before I have even a bit of positive investment performance.
If instead, you provide me with a more generous match of 50 cents on the dollar for my first 6% of pay, the motivation for me to defer at least that 6% is even greater. And, of course, if you provide me with one of the nice safe harbor matches that are even more generous, I am motivated still further.
Auto-enrollment provides no such motivation. Without that motivation, when I hit a financial crunch (perhaps my new-fangled high-deductible health plan is not providing me with the risk management tools that I really need), the first place I may look to for an extra source of weekly or monthly cash is those 401(k) deferrals. Perhaps stopping them allows me to pay my rent or mortgage on time. Perhaps it allows me to make my car payments. Because I don't have an additional incentive beyond the holy grail of retirement to continue saving, ceasing my 401(k) deferrals sure feels like a good idea. And, once I stop, I probably won't start again.
From where I sit, most people today seem to live at or above their means where their means are characterized by their take-home pay. The old defined benefit-based system allowed people to retire because their take-home pay was perhaps a little bit less in order to pay for their retirement benefit which could be a fair amount more. The discipline in that was not employee-driven, but plan design and ERISA-driven.
Now, the motivation is largely gone and the discipline is largely gone. People are living longer and a lot of them are going to have to work for a long, long time.
The author and her sources are correct. Auto features will help, but they are not enough.
Why not?
Suppose I am a participant in a 401(k) plan and you are my employer. Suppose that in that plan, you provide me with a fairly measly (by today's standards) match of 25 cents on the dollar for the first 4% of pay that I contribute. That's not much; you're only contributing as much as 1% of my pay, but you are motivating (note the lack of use of the non-word incentivize) me to defer at least 4% of my pay. That means that 5% of my pay will go into my account. It's also a first-year return on my investment of 25% before I have even a bit of positive investment performance.
If instead, you provide me with a more generous match of 50 cents on the dollar for my first 6% of pay, the motivation for me to defer at least that 6% is even greater. And, of course, if you provide me with one of the nice safe harbor matches that are even more generous, I am motivated still further.
Auto-enrollment provides no such motivation. Without that motivation, when I hit a financial crunch (perhaps my new-fangled high-deductible health plan is not providing me with the risk management tools that I really need), the first place I may look to for an extra source of weekly or monthly cash is those 401(k) deferrals. Perhaps stopping them allows me to pay my rent or mortgage on time. Perhaps it allows me to make my car payments. Because I don't have an additional incentive beyond the holy grail of retirement to continue saving, ceasing my 401(k) deferrals sure feels like a good idea. And, once I stop, I probably won't start again.
From where I sit, most people today seem to live at or above their means where their means are characterized by their take-home pay. The old defined benefit-based system allowed people to retire because their take-home pay was perhaps a little bit less in order to pay for their retirement benefit which could be a fair amount more. The discipline in that was not employee-driven, but plan design and ERISA-driven.
Now, the motivation is largely gone and the discipline is largely gone. People are living longer and a lot of them are going to have to work for a long, long time.
Monday, February 10, 2014
AOL Reacts to Media and Employee Pressure
AOL had made a decision to follow in what many were calling the IBM mold. Rather than providing matching contributions in its 401(k) plan on a payroll period basis, it had decided to make single matching contributions after the end of the plan year. Therefore, employees who left during the year would not receive matching contributions.
The media were up in arms. Employees were up in arms. AOL gave in and is returning to its former policy of matching on a payroll period by payroll period basis.
And, this is big news!?
What really got to me about the media coverage was the spin that they managed to put on it. Employees could be losing out on the massive run-up on the matching contributions. Not said was that those balances could lose money as well. It's not fair that employees who leave during the year won't get matching contributions. What makes this fair or unfair? If you know the rules up front and you are evaluating leaving during the year, this should be one of your considerations.
How bad is it really? I'm going to oversimplify my example so that the math doesn't strain my brain. Suppose Employee Z has wages of $100,000 per year and a company matches 50 cents on the dollar on the first 6% of pay contributed. This is not an unusual design. Further suppose (and this is not quite right) that matching contributions are usually made on average exactly halfway through the year. Also assume that under the IBM design that matching contributions are made on the January 1 after the end of the year. Finally, assume that balances earn, on average, 10% returns (I want that investment adviser).
Suppose Z does not leave the company during the year. Then the difference during that year is is approximately 5% of $3,000. In other words, under the more traditional design, Z will have an account balance that is $150 larger. Yes, there are the effects of compounding, but this is really not as big a deal as the media made it out to be.
Surely, AOL has already determined how much money it plans to spend on its employees. if it spends more on the 401(k) plan, rest assured it will spend less somewhere else. It all comes out in the wash. But, it sure does make for an exciting story when a bunch of reporters, many of who think the plan is called a 401 [without the (k)], get a hold of it.
Really, it isn't.
The media were up in arms. Employees were up in arms. AOL gave in and is returning to its former policy of matching on a payroll period by payroll period basis.
And, this is big news!?
What really got to me about the media coverage was the spin that they managed to put on it. Employees could be losing out on the massive run-up on the matching contributions. Not said was that those balances could lose money as well. It's not fair that employees who leave during the year won't get matching contributions. What makes this fair or unfair? If you know the rules up front and you are evaluating leaving during the year, this should be one of your considerations.
How bad is it really? I'm going to oversimplify my example so that the math doesn't strain my brain. Suppose Employee Z has wages of $100,000 per year and a company matches 50 cents on the dollar on the first 6% of pay contributed. This is not an unusual design. Further suppose (and this is not quite right) that matching contributions are usually made on average exactly halfway through the year. Also assume that under the IBM design that matching contributions are made on the January 1 after the end of the year. Finally, assume that balances earn, on average, 10% returns (I want that investment adviser).
Suppose Z does not leave the company during the year. Then the difference during that year is is approximately 5% of $3,000. In other words, under the more traditional design, Z will have an account balance that is $150 larger. Yes, there are the effects of compounding, but this is really not as big a deal as the media made it out to be.
Surely, AOL has already determined how much money it plans to spend on its employees. if it spends more on the 401(k) plan, rest assured it will spend less somewhere else. It all comes out in the wash. But, it sure does make for an exciting story when a bunch of reporters, many of who think the plan is called a 401 [without the (k)], get a hold of it.
Really, it isn't.
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