What Happened with General Electric's 401(k)?

January 05, 2024

General Electric faced a significant legal challenge related to its 401(k) plan, resulting in a $61 million settlement, one of the largest in ERISA (Employee Retirement Income Security Act) litigation history. The six-year-long lawsuit accused GE of breaching fiduciary duties by including its own investment options in the $30.3 billion plan and retaining them for over a decade. ERISA regulations govern 401(k) plans, emphasizing the importance of fiduciaries in ensuring compliance and protecting participants' rights and assets. The settlement, pending court approval, underscores the critical role fiduciaries play in upholding the integrity and responsibility of 401(k) plans, ultimately safeguarding the financial well-being of participants and their retirement savings. For more comprehensive financial insights, visit our YouTube Channel

Full Transcript:

Hello, welcome to Arista Advice! Question of the week is: "Paul, what is a Simplified Employee Pension (SEP) IRA?" Once again, here's another acronym in our industry, Simplified Employee Pension (SEP) IRA, is an individual retirement account that an employer or a self-employed person can establish for their retirement.

The employer is allowed a deduction for offering and providing a SEP IRA, and also for contributing on behalf of the employee. Third is the SEP IRAs are best for self-employed people or small business owners with few or no employees.

Let's look at the graph to discuss it. The pros - high contribution limits, hassle-free for employees, you get tax deferred growth, you get tax deduction for the employers, a 100% of the money is always vested, and it can be combined with other IRAs. What are the cons or the not so good? There's no catch up contributions, the employees cannot contribute. The required minimum distributions do kick in at either age 70 and a half, 72 or 73 depending upon your age. And finally, there's no other vesting options, but Paul, how does a SEP IRA compare to a 401(k)?

Let's review and discuss. Number one, with a SEP IRA, low paperwork and low maintenance. Contribution limit - $61,000 is the max. It's limited to 20% of the self-employed or 25% if it's an S Corp. It's funded by the employer. It's funded with pretax income and the vesting is immediately. What's the good with the 401(k)? Paperwork is high, maintenance is high. Contribution limits range from anywhere from 22,000 to 30,000 that can be contributed. Also, the 401(k) can have a profit sharing attached to it that could also move it up to 66,000. It is funded by the employer and employee. It's pre and post-tax, so inside of a 401(k) you can have a Roth 401(k) that can capture all of that money. And fourth, you can do it throughout the year, and you can have a multi-year immediate vesting schedule, which would not give you the immediate like a SEP IRA, but would give you a vesting schedule to capture all that money. And in conclusion, SEP IRAs can be a great option for self-employed people or small business owners. SEP IRAs can offer higher contribution limits than traditional IRAs, making them a valuable option for retirement savings and particularly for businesses with a few employees.

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