Academic journal article Journal of Legal, Ethical and Regulatory Issues

401(k) Retirement Accounts and Age Restrictions

Academic journal article Journal of Legal, Ethical and Regulatory Issues

401(k) Retirement Accounts and Age Restrictions

Article excerpt

ABSTRACT

The business world is increasingly concerned with discrimination issues between different groups of employees. Interestingly, age discrimination is legal under the provisions of the 401(k) retirement benefits statute. Current law requires that all employees be covered under a company's 401(k) program at the age of 21; however, benefit coverage for employees younger than 21 remains at the employer's discretion.

INTRODUCTION

At the heart of most individual investment is a desire to secure economic or financial security. Traditionally family members and relatives have felt some degree of responsibility to one another. To the extent that the family had resources to draw upon, this was often a source of economic security, especially for the aged or infirm. Long before financial assets, land itself was the key asset and at the center of economic security for those who owned it or who lived on farms (Social Security Administration, 2000). Thus the traditional sources of economic security are assets, labor, family, and finally if necessary charity.

The problem of economic insecurity was at the center of the Social Security legislation. Social Security speaks to a universal human need of economic security. All individuals face the uncertainties brought on by death, disability and old age. Prior to the turn of the 20th century, the majority of people lived and worked on farms and economic security was provided by their labor and extended family. The Industrial Revolution changed the way America faced economic uncertainty, primarily because the family farm and extended family as sources of economic security became less common. The Great Depression was a financial flash point in the nation's economic life. It was against this backdrop that the Social Security Act emerged.

More recently, President George W. Bush, in his Inaugural Address announced his intentions to reform Social Security and Medicare (Social Security Administration, 2000). In his first speech to a joint-session of Congress in February 2001, the President announced his intention to appoint a Presidential Commission to recommend ways to address Social Security reform. The President stated that the Commission would operate under three broad principles:

* It must preserve the benefits of all current retirees and those
nearing retirement.

* It must return Social Security to sound financial footing.

* It must offer personal savings accounts to younger workers who want
them.

As society changes individuals must consider new ways to address their own economic security. This security, for the individual and for the family, concerns itself primarily with three factors:

* People want decent homes to live in.

* People want to locate their homes where they can engage in productive
work.

* People want some safeguard against misfortunes, which cannot be
wholly eliminated.

The key concern of this paper is the role of the 401(k) law in limiting individuals in their ability to provide for their own economic futures.

EMPLOYMENT SCENARIO

Mattson, et al, (2000) considers three scenarios with "equally qualified applicants":

* a male applicant and female applicant both are hired for the
identical position; only the male applicant receives benefits

* a white applicant and an Hispanic applicant both are hired for the
identical position; only the white applicant receives benefits

* a Southern Baptist applicant and a Catholic applicant both are hired
for the identical position; only the Southern Baptist receives benefits

All three scenarios are potentially legal, though perhaps not "fair." This distribution of benefits are legal if the female, Hispanic, and Catholic applicants are all eighteen years old and the male, white, and Southern Baptist applicants are twenty-one.

Consider a full-time (40 hour per week) employee who has to wait three years to be eligible for the retirement benefits offered by her employer in the form of a 401(k) plan. …

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