Cost Cut Theory

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hardship withdrawal, thus netting only $6,500, Ritter explained. the bigger loss, of course, is the future value of the money, according to the financial analysts. “if you left the $10,000 in for 20 years and it earned 8 percent, that would have amounted to $46,600,” Ritter noted. Ritter said that taking money out of a 401(k) plan—as either a loan or a hardship withdrawal—can be a false solution that keeps the person in crisis from taking appropriate action, such as selling the house, getting another job, or cutting expenses. “You need a systemic solution, something that’s going to change your household cash flow,” he said. liberto said another reason to avoid a hardship withdrawal in the current market is that the employee would be borrowing funds that have dropped in value, with no chance to recoup the loss when the market recovers. Barbara Bird, a management professor and entrepreneurship expert at american university in Washington, d.c., said that at this time of such dramatic financial upheaval, companies can help employees by providing financial education. “a lot of people out there don’t know what diversification means,” she said, or what the difference is between stocks and bonds. Bird said that some people who take hardship withdrawals do not understand the tax consequences until april. companies can set up training classes or communicate through a newsletter or Web page, she added. “one of the things managers need to do in times of crisis is to communicate,” Bird said, “to share as much as they can about what’s happening at the company as the financial situation plays out nationally. q MaRcH 2009

InTRODuCeHDHPsTOCuTHeALTHCAReCOsTs Issue:in 2005, a business services company sought to cut its health care costs by introducing high deductible health plans ( HdHps) to its employees in hopes of increasing its enrollment. Response:“along with the HdHp options, we also started...
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