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What are the Most Common 401(k) Mistakes that NiSource Employees Make?

Healthcare Provider Update: NiSource provides employees with a variety of health insurance options including PPO, HMO, and high-deductible plans with HSAs. Dental and vision coverage is available, along with FSAs for healthcare and dependent care. Life insurance equal to twice base pay is company-paid, with options to purchase additional coverage. Disability benefits, accident insurance, and paid sick leave are also included. Retirement benefits feature a 401(k) plan with matching, and employees may receive opt-out credits if they decline coverage 2. NiSource As ACA premiums rise, NiSources employer-sponsored plans and pre-tax savings accounts offer employees a more affordable and stable alternative to marketplace coverage. With insurers requesting double-digit increases and federal subsidies potentially expiring, employer-backed plans like NiSources help shield employees from steep out-of-pocket costs. Click here to learn more

The real test for NiSource employees means optimizing their company-sponsored retirement plans, including match contributions, and avoiding withdrawals especially during tough economic times to harness retirement accounts' long-term growth potential.

In this article, we will discuss:

1. The significance of maximizing employer-sponsored retirement plans, including employer match.

2. The need to follow long-term investment strategies and prevent premature withdrawals.

3. The need to diversify 401(k) investments to minimize risks and guarantee better returns.

'NiSource employees need their 401(k) portfolios to include diverse investments because it is the best way to protect their retirement funds from market risks while building a financial safety net for the future.”This situation is complicated by financial retirement account challenges which according to a CNBC Your Money Survey – 41% of employees do not put money into a 401(k) nor plan set up by their company.

Despite clear advantages of workplace retirement programs, many NiSource workers fail to seize their full potential in these plans. According to Joe Buhrmann, a senior financial planning consultant at eMoney Advisor, only a small number of employees are able to use their employer-sponsored plans to build up their retirement savings. A critical element that is often forgotten is the employer match which is a critical component of retirement savings. Surprisingly, according to data from Fidelity, the leading provider of 401(k) plans in the United States, roughly 22% of plan participants do not get the full match amount. Fidelity reported that the average employer contribution to a 401(k) plan was 4.7% of an employee's salary in the third quarter of 2023, with a range of 3 to 6 percent.

As a result, partners with dual employer savings plans may gain a strategic advantage by directing their contributions to the plan that provides the higher employer match. Mike Shamrell, vice president of thought leadership at Fidelity, explains the need to make enough contributions to get the full match from the company. This could lead to tens of thousands of dollars more being deposited into retirement accounts every year. Shamrell recommends auto-escalating contributions to this end so that savings can be increased every year without having to be done so manually.

In response to these challenges, the Internal Revenue Service raised contribution limits for retirement accounts in 2024: 401(k) and IRA limits stand at $23,000 and $7,000, respectively. This modification offers a chance for more savings before the retirement of NiSource. However, withdrawals from retirement accounts during difficult economic times are a concerning trend that detracts from the power of compound interest. Even as the US experiences high inflation, 401(k) withdrawals have risen, according to reports.

On average, experts recommend against using this money. It is also necessary to understand the distinction between a 401(k) withdrawal and a loan if that is relevant. A 401(k) loan allows you to borrow as much as 50% of your account balance or $50,000, whichever is less, with a five-year repayment period. However, before age 59, withdrawals are taxed at ordinary rates and may be subject to a 10% tax penalty, with some exceptions for hardship withdrawals. In the future, a new provision set to launch in 2024 will permit people to take up to $1,000 per year in one transaction for personal or family emergencies as a critical resource in case of need. One final tip is to think long term. This has made Fidelity report an average balance of $107,700, which is an 11% increase from the previous year, after 401(k) account balances dropped about 25% in 2022 due to high volatility.

Those workers who have been consistent with their investments over the past 15 years have watched their average balances grow from $56,300 in 2008 to $448,800. Therefore, it is crucial not to alter the contribution rate and to keep the right asset allocation regardless of market volatility. This should not be the case for 401(k) changes as manipulating short-term market trends may result in missing out on growth or unintentionally exposing the account to risk. When retiring, especially at age 60, the consequences of Required Minimum Distributions (RMDs) from 401(k) plans are an important factor that must be considered. From 401(k)s, RMDs are required starting at age 72 and are based on the account balance and life expectancy. This can have a significant impact on retirement income planning and tax planning. The Internal Revenue Service announced in 2023 that failure to withdraw these distributions will incur a substantial 50% excise tax on the amount that should have been withdrawn. Therefore, it is crucial that NiSource retirees implement good RMD strategies to

In brief, the following are important aspects of financial stability and retirement planning: The importance of long-term investment strategies and the caution in retirements funds withdrawals; The understanding and optimization of employer-sponsored retirement plans. Managing a 401(k) plan is like being a captain during a long journey. Just like how experienced sailors need to know weather forecasts, boat details, and how to adjust sails to make the most of the wind, those near retirement also need to have a good understanding of the nuances of their 401(k) plan.

This is similar to a good wind:

it takes you without you having to put in more effort. This is similar to saving resources for the time when they are actually needed instead of using emergency funds unless the situation is really bad. Finally, making provisions for RMDs (Required Minimum Distributions) is like planning for your route; you won’t be caught out by tax demands you can’t meet.

Just as there is the need to maintain and make changes to the map for a successful journey, the management of a 401(k) account for NiSource employees in order to guarantee a comfortable and secure retirement also requires the same degree of attention.

Additional Fact:

One major mistake that NiSource workers make with their 401(k) plans is not diversifying their investments. According to the Retirement Planning Institute, this year's survey found that a large number of employees are likely to put too much of their money into their company's stock, which is dangerous when the company is not doing well. This is important in reducing risk and guaranteeing the steady growth of the retirement savings over the years. This neglect can result in high concentration of risk which, as has been the case in the past, can put retirement savings in danger. This paper therefore urges NiSource professionals to consult their 401(k) statements with a financial advisor at least once a year to check on their asset diversification across the various categories.

Added Analogy:

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This paper has found that failing to diversify a 401(k) is like sailing with the right equipment but only using one type of sail. Just as using one sail can be hazardous in changing winds and weather, this means that retirement savings are exposed to market volatility and company-specific risks. A wise sailor carries many sails – the spinnaker, jib, and main sail, to manage the different conditions and to maintain a smooth and steady journey. Therefore, NiSource employees should make their 401(k) investments across various sectors to ensure that they can take on any financial challenges and transition smoothly to retirement.

Sources:

1. 'One in Four Workers Miss Out on Full 401(k) Match.' Society for Human Resource Management (SHRM) , SHRM, 2024, www.shrm.org/resourcesandtools/hr-topics/benefits/pages/one-in-four-workers-miss-out-on-full-401k-match.aspx .

2. '401(k) Limit Increases to $23,000 for 2024, IRA Limit Rises to $7,000.' Internal Revenue Service (IRS) , U.S. Department of the Treasury, 2024, www.irs.gov/newsroom/401k-limit-increases-to-23000-for-2024-ira-limit-rises-to-7000 .

3. 'Considering a More Equitable, Efficient 401(k) Match.' Vanguard , Vanguard, 2024, institutional.vanguard.com/VGApp/ii/401kplan/plan_details.v;jsessionid=1db3070b6f0159a26f5da0b95bfcff72.

4. '401(k) Matching Example: Potential Growth Over Time.' Empower , Empower Retirement, 2024, www.empower-retirement.com/participants/tools-resources/401k-matching .

5. 'How Does a 401(k) Match Work?' Fidelity Investments , Fidelity, 2024, www.fidelity.com/viewpoints/retirement/how-does-a-401k-match-work .

As an employee of National Grid, what are the key eligibility criteria for participating in the Pension Plan specifically for Niagara Mohawk Power Corporation employees? How might these criteria impact your personal retirement planning and the benefits you expect to receive upon retirement from National Grid?

Eligibility Criteria for Niagara Mohawk Pension Plan: Employees of Niagara Mohawk Power Corporation who are represented by Local Union 97 of the IBEW and work at least 20 hours per week or accumulate 1,000 hours in a Pension Plan year are eligible. Participation begins automatically on the first day of employment. These criteria directly impact retirement planning by determining when employees begin accruing pension benefits and how much they will receive at retirement(National_Grid_2023_Niag…).

Within the framework of the National Grid Pension Plan, how does the cash balance formula work in calculating retirement benefits, and what implications does this have for employees of Niagara Mohawk Power Corporation when considering their long-term financial outlook?

Cash Balance Formula: The National Grid Pension Plan for Niagara Mohawk employees uses a cash balance formula that provides monthly pay-based credits (starting at 4% and increasing with years of service) and interest credits. These accumulate in a hypothetical account, growing until retirement, allowing employees to track their retirement benefits much like a savings account. This formula impacts financial outlook by providing predictable growth tied to service and pay(National_Grid_2023_Niag…).

For employees at National Grid, what are the specific rights and options available during the pension benefit application process? How do these rights protect the interests of individual employees and ensure they receive fair treatment under the Niagara Mohawk Pension Plan?

Pension Benefit Application Process: National Grid employees must apply for their pension benefits by submitting the required forms at least 90 days before retirement. Spousal consent is required if opting for any form of payment other than the default. This ensures employees understand and select the best payment option for their circumstances, protecting their interests under the Niagara Mohawk Pension Plan(National_Grid_2023_Niag…).

Given the different types of credits that contribute to the pension benefit for employees of National Grid, how are Pay-based Credits and interest credits calculated? What strategies might Niagara Mohawk Power Corporation employees employ to maximize these credits before retirement?

Pay-based and Interest Credits Calculation: Pay-based credits are determined by years of service, starting at 4% of pay and increasing to 8% after 20 years. Interest credits are based on an annual interest rate tied to the Treasury securities and corporate bond rates. Employees can maximize these credits by continuing to work and contributing to their pension balance(National_Grid_2023_Niag…).

How do pension benefits work for Transition Group Employees specifically within National Grid's framework, and what unique provisions apply to them under the Pension Plan as compared to regular employees of Niagara Mohawk Power Corporation?

Pension Benefits for Transition Group Employees: Transition Group Employees under the National Grid Pension Plan have benefits calculated using both the former final average pay formula and the cash balance formula, with the greater benefit being paid out. This differs from regular employees who only receive benefits calculated under the cash balance formula(National_Grid_2023_Niag…)(National_Grid_2023_Niag…).

What are the repercussions for National Grid employees in terms of benefit loss or limitation if they have not met the Vesting requirements under the Niagara Mohawk Pension Plan? How can understanding these repercussions influence an employee's decision-making regarding their career and retirement?

Impact of Vesting Requirements: Employees must complete three years of service to become vested in the Niagara Mohawk Pension Plan. If they leave before vesting, they lose all accrued pension benefits. Understanding vesting requirements is crucial for career and retirement planning, as it ensures employees retain their pension benefits if they meet the criteria(National_Grid_2023_Niag…).

As a current employee at National Grid, what does the termination of the Pension Plan imply for accrued benefits under the Niagara Mohawk Pension Plan? Specifically, how do federal protections through ERISA and the Pension Benefit Guaranty Corporation come into play for employees seeking assurance regarding their retirement funds?

Termination of Pension Plan and Federal Protections: If the Niagara Mohawk Pension Plan is terminated, accrued benefits are protected by ERISA and insured by the Pension Benefit Guaranty Corporation (PBGC). Employees can feel assured that their benefits will be secured up to the PBGC's limits in case of plan termination(National_Grid_2023_Niag…).

How does the National Grid Pension Plan accommodate the unique situations of employees during times of disability or military service, and what steps should Niagara Mohawk Power Corporation employees take to ensure their benefits continue during these periods?

Disability and Military Service: Niagara Mohawk employees receive service credits during periods of disability or military leave, ensuring continuous pension accrual. Employees should ensure their disability or military status is properly documented with the company to avoid interruptions in their pension benefits(National_Grid_2023_Niag…).

When considering the various forms of pension payments available to retirees from National Grid, what are the potential advantages and disadvantages of choosing an annuity versus a lump-sum payment for employees from Niagara Mohawk Power Corporation?

Annuity vs. Lump-Sum Payment: Retirees at National Grid have the option to choose between an annuity, providing a steady income for life, or a lump-sum payment. The annuity provides financial stability, while a lump sum offers flexibility. The choice depends on individual financial needs and retirement goals(National_Grid_2023_Niag…).

For those looking to gain further clarity on the nuances of the Niagara Mohawk Pension Plan, what are the most effective ways for employees to contact National Grid for assistance? How can engaging with the Pension Service Center enhance an employee's understanding of their benefits and rights?

Contacting National Grid for Pension Assistance: Employees seeking more information about their Niagara Mohawk Pension Plan can contact the National Grid Pension Service Center or use the online pension modeler. Engaging with the Pension Service Center provides personalized guidance, helping employees understand their benefits and make informed decisions(National_Grid_2023_Niag…).