Your retirement savings represent years of hard work and sacrifice. The assets held in retirement plans, such as 401(k) plans, are essential to financial security in old age – covering living expenses, medical bills and so much more – and must be carefully protected. That’s why plan fiduciaries, including plan sponsors and investment managers, have a strong legal obligation under the Employee Retirement Income Security Act to protect retirement savings. These fiduciaries must act solely in the financial interests of plan participants and adhere to a high standard of care when managing plan participants’ retirement holdings.
In recent months, some financial services firms have started marketing investments in cryptocurrencies as potential investment options for participants in 401(k)s. At this early stage in the history of cryptocurrencies, however, the U.S. Department of Labor has serious concerns about plans’ decisions to expose participants to direct investments in cryptocurrencies or related products, such as NFTs, coins, and crypto assets.
President Biden’s recent executive order on ensuring responsible development of digital assets highlights the significant financial risks digital assets can pose to consumers, investors and businesses in the absence of appropriate protections.
Cryptocurrencies can present serious risks to retirement savings, including:
- Valuation concerns.
- Obstacles to making informed decisions.
- Prices can change quickly and dramatically.
- Evolving regulatory landscape.
Based on these concerns, the United States Department of Labor has issued a compliance assistance release for plan fiduciaries focused on 401(k) plan investments in cryptocurrencies.
For more information, click here.
- Ask students if they, their friends or relatives have 401(k) plans. If so, has anyone invested in Cryptocurriencies in their retirement plans and what have been their experiences?
- Ask students to prepare a list of potential dangers in investing in cryptocurrencies or other digital investments.
- Why is the U.S. Department of Labor concerned about people investing in digital assets for their retirement plans at this time?
- Should the federal government prohibit 401(k) plan providers from investing in cryptocurrencies in participant’s retirement plans? Why or why not?
Original Medicare pays for much, but not all, of the cost for covered health care services and supplies. Medicare Supplement Insurance policies, sold by private companies, can help pay some of the remaining health care costs for covered services and supplies, such as copayments, coinsurance, and deductibles. Medicare Supplement Insurance policies are also called Medigap policies.
Some Medigap policies also offer coverage for services that Original Medicare doesn’t cover, such as medical care when you travel outside the U.S. Generally, Medigap policies don’t cover long-term care (such as care in a nursing home), vision or dental care, hearing aids, eyeglasses, or private-duty nursing.
Every Medigap policy must follow federal and state laws designed to protect you, and they must be clearly identified as “Medicare Supplement Insurance.” Insurance companies can sell you only a “standardized” policy identified in most states by letters A through D, F, G, and K through N. All policies offer the same basic benefits, but some offer additional benefits so you can choose which one meets your needs. In Massachusetts, Minnesota, and Wisconsin, Medigap policies are standardized differently.
For more information, click here.
- Ask students to read about different types of Medigap policies, what they cover, and which insurance companies sell Medigap policies in their area.
- Ask students to find and compare drug plans, health plans, and Medigap policies offered in their state.
- What are the differences between a Medigap policy and a Medicare Advantage Plan?
- What types of services are not generally covered by Medigap policies?
As more and more people work as freelancers, independent contractors, and sharing economy workers, concerns grow regarding retirement for this group. A recent study revealed that very few full-time gig economy workers have an adequate retirement plan. Relying on Social Security is probably not enough since those funds will not likely cover retirement living expenses.
Most gig economy workers are one-person businesses, many with limited financial literacy. As a result, they do not properly plan for retirement savings. Self-employed individuals also face the challenge of volatile income streams. And, they lack employer-provided benefits, such as health and disability insurance, unemployment benefits, and paid time off. In addition, these gig economy workers are responsible for paying 100 percent of their Social Security and Medicare taxes through self-employment tax.
Some advantages of gig economy workers are:
- deducting most business-related expenses, reducing their taxable income.
- access to Simplified Employee Pensions (SEPs) that allow self-employed people to contribute to a tax-deferred retirement fund.
- the ability to supplement their retirement income as they may continue to work part-time with customers and clients in their later years.
While gig workers face several financial challenges, programs are surfacing to help the self-employed save for retirement and achieve better long-term financial security. These include:
- Open Multiple Employer Plans (MEPs) or Pooled Employer Plans (PEPs) that let employers combine resources for independent workers to purchase group health and disability insurance.
- A proposed Portable Benefits for Independent Workers Pilot Program Act to establish a fund through the U.S. Department of Labor.
- Several states are creating automatic-enrollment IRAs involving government-facilitated programs administered by private financial firms.
For additional information on retirement planning in the gig economy, go to:
- Have students talk to a freelancer or independent contractor to obtain information about their financial planning activities.
- Have students create a financial plan with recommendations for a freelancer or independent contractor.
- What do you believe are the benefits and drawbacks for gig economy workers?
- Describe actions you would recommend to self-employed individuals for improved personal financial security.