This post is a review of GM’s 401(k) plan for hourly U.S. employees that is written for current and former General Motors employees that would like easy to understand details about their plan.
How This Guide Can Help You
This guide is geared to help you make the most of your retirement money to try to offset the headwinds that make the retirement of today more challenging than the retirement of your parents and grandparents.
The retirement of yesterday, where someone strolls off into the sunset with a healthy income from a pension and Social Security is becoming a thing of the past. Several headwinds exist that make it hard for workers to get ahead and build up enough of a retirement portfolio to live the retirement life they’ve dreamed of.
The mass-retirement of Baby Boomers that is now underway presents a burden on the stock market in that a new wave of money is being redeemed for living expenses. This is the opposite trend that occurred in the rising markets of the 1980s and 1990s, when Boomers where funneling money into their 401(k)s. In fact, in 2013, 401(k) withdrawals exceeded contributions, and the trend is expected to continue as roughly 10,000 Boomers retire every day and will continue to for many years to come.
If that weren’t bad enough, the low interest rates that have existed for a decade make it practically impossible to earn a decent return in safer investments. Compare this to when the Greatest Generation retired with double digit CD rates in the 1980s. And with the government debt having exploded to approximately $20 trillion, it doesn’t take too much imagination to think that the government will continue to keep rates lower than average. After all, if rates go up much, the interest payments on the national debt won’t be manageable.
And finally, to top it off, it would seem normal to expect taxes to increase to bail out our underfunded Social Security and Medicare programs. So while taxes have historically gone down for people in retirement, we might be facing an era when they don’t, or even one where they increase.
Taking Control
I frequently get asked to review someone’s employer retirement plan to pick out funds for them, advise them on how much to contribute, and discuss the pros and cons of rolling money into the plan if they are new to the company or rolling money out if they’ve left the company or reached the age when they can roll money out even while still working there – usually age 59 ½.
This review is meant to provide meaningful information to help individuals with money in the GM retirement plan so that they can try to make the most of their retirement nest egg. All of the information in the review is intended to be objective data that is pulled from publicly available records. The most recent data came from General Motor’s Hourly-Rate Employees plan as of 2015. Public data such as this is usually about a year old when it gets published. As such, some of the information regarding fund choices and other items will probably have changed.
What’s Covered in this Review
This guide is meant to be written in plain-English, be as short as feasibly possible, and not go down the rabbit hole of discussing an endless array of retirement plan, tax, and IRS rules.
I’ll be covering:
The Number and Types of Fund Choices in the 401(k)
Whether or Not there is a Company Contribution
The Assets in the Plan
The Amount of Contributions Employees are Putting into the Plan
The Amount of Rollovers going into the Plan
The Amount of Payments and Rollovers Being Pulled from the Plan
A Special Feature: The Mega Backdoor Roth Opportunity, or how some 401k plans allow employees to put around $25,000 into a Roth IRA with no income limit
If you’re a first time visitor to my website or don’t know much about me, I am a Certified Financial Planner™ professional who has been in the financial advisory industry for 20 years. I’m an independent advisor not affiliated with any of the Wall Street firms or big banks, and I have no connection with the General Motors Personal Savings Plan for Hourly-Rate Employees in the United States. I do reside in the same metropolitan area as one of GM’s plants, and this has helped me gain some of the insight to the plan that I’ll share.
Before I go any further, let me throw out the typical disclosure/legal mumbo jumbo for CYA purposes:
This is a general review and should not be interpreted as a specific recommendation for anyone. Neither General Motors nor its 401(k) provider have endorsed this article in any way. I am unaffiliated with General Motors and its 401(k) provider and do not receive compensation for this article. There is always the possibility that Congress and the IRS will change tax laws or their interpretation of them in the future, which could lead to less desired outcomes for individuals. In some situations it might be better for an individual to leave money in a work related retirement plan than roll it into an IRA. An analysis of the pros and cons of leaving money in a 401(k) or rolling it to an IRA should be conducted prior to pulling the trigger on any transaction. Before pursuing any strategies described here, discuss them with your tax professional. This report contains data that comes from publicly available sources that are deemed to be reliable, but its accuracy has not been verified. If any data in this report conflicts with information provided by GM or its 401(k) plan provider, then obviously rely on the General Motors or plan provider’s data.
General Motors 401K Plan Features
Company Match or Contribution
The company 401k plan does contain a match. It should go without saying, but take advantage of matching contributions.
Number of Funds
At the time of this writing, the most recent data show that there are 33 fund choices in General Motors Personal Savings Plan for Hourly-Rate Employees. More details on this will be in the Fund Choices section of this report.
Brokerage Window
The plan does not include a feature called a brokerage window. Generally, a 401(k) plan will have a set menu of a handful to a few dozen investment funds from which the employees can pick. Some plans, but not GM’s Hourly-Rate plan, also have a feature that lets the employees have a brokerage account that allows them to buy pretty much any investment just like they could if they opened a brokerage account at any of the brokerage firms that advertise on TV or in newspapers and magazines. This gives employees more choices, but it also allows them to play with fire and get into something that they don’t understand. A brokerage window probably isn’t a good idea for someone who doesn’t have a strong grasp of investing that they’ve gained through years of reading and investing experience.
GM’s Hourly Retirement Plan Stats
Assets in the GM Hourly 401(k) Plan
As of December 31, 2015, the GM Hourly retirement plan had assets of $6,682,564,573.
Dollars Contributed to the GM Hourly 401(k) Plan
During 2015, GM’s Hourly 401k had contributions of $284,828,331. Of that amount, $226,655,325 came from employees, $53,008,158 came from GM.
Rollovers into the General Motors 401(k) Plan for Hourly-Rate Employees in the U.S.
In 2015 the GM Hourly 401(k) plan had other contributions, including rollovers into the plan, of $5,164,848.
Payments and Rollovers Out of the GM Hourly 401(k) Plan
In 2015 the GM Hourly 401(k) plan had payments to participants, including rollovers out of the plan of $512,859,397.
Fund Choices in the GM Hourly 401(k) Plan
As of 12/31/15 there were 33 fund choices in the GM Hourly 401k. For some reason, unlike the public filings for most 401k plans, the 2015 GM Hourly Retirement Plan filing does not list the fund choices. When this information becomes available, I’ll include the investment categories that are covered by funds and those categories where there is not a fund choice available.
How to Roll Over a 401(k) While Working
Many 401(k) plans allow for what are called “In-Service Rollovers” or “In-Service Distributions”. Sometimes these require a qualifying hardship, but in many cases anyone can do one if they are age 59 ½ or older. This is becoming a popular option for employees nearing retirement at companies that allow for it because it lets them have access to a broader array of investment choices than those limited to their plan. This can allow for increased diversification as they near retirement and the implementation of other retirement income-oriented products that have the goal of creating a stable income stream not dependent on the economy or stock market.
As with any financial decision, there are pros and cons about implementing an in-service rollover, and sometimes it is not the best option for an individual. So, it’s recommended that you speak to an advisor to weigh the pros and cons before pursuing it.
If having more investment choices or implementing other strategies as you get closer to retirement is something that you would like to pursue, all you need to do is contact HR or the 401k plan provider, tell them you want to process an in-service distribution, and they will walk you through the process if it’s available to you.
Want to discuss the pros and cons of it? Just get in contact with me and I’ll walk you through the things you’ll want to consider before making a decision.
Special Feature allowed in some 401(k) plans: The Mega Backdoor Roth Opportunity
(Or how to plug around $25,000 or more per year into a tax-free Roth IRA even if your income exceeds the Roth IRA limits.)
Some retirement plans are structured to allow employees to top off their 401(k) account’s maximum contribution limit with after-tax dollars AND the plan lets them roll over those post-tax contributions into a personal Roth IRA account even when they are still employed at the company.
In all my years as a financial planner, this is the biggest and best virtually unknown financial planning trick I’ve seen. Yes, it’s been given a ridiculous name, but it’s the real deal. It can allow you to funnel potentially over $25,000 per year into a Roth IRA regardless of how much money you make.
This topic is complex, but I’ve written a step-by-step guide on how to take advantage of this opportunity at a company that allows for it. Read more about it on my blogpost here.
Have questions about the Mega Backdoor Roth Opportunity at General Motors? You can reach me via my contact form here.
Rating for the General Motors Personal Savings Plan for Hourly-Rate Employees in the United States.
A company called BrightScope sifts through data on 401(k) plans and provides ratings to compare them to other companies. I don’t have any connection to BrightScope, but have included some of its analysis here. As of July 2017, BrightScope gave the GM Hourly-Rate retirement plan a rating of 73. For reference, the highest 401(k) plan in the GM Hourly-Rate plan peer group received a 90 rating and the average in the peer group received a 73. BrightScope has a review metric where it ranks a 401(k) plan to the highest ranked plan in the peer group and comes up with an estimate of how many more years of work an average employee of the reviewed company might have to work compared to the top ranked plan. BrightScope gives a long explanation of the how the analysis is done, and I’m not going to try to explain it here, but as of June 2017 it gave a calculation of up to 11 years on the GM Personal Savings Plan for Hourly-Rate Employees in the U.S. review.
Summary
The GM Hourly 401(k) plan does include company matching contributions.
There are 33 fund choices.
99 times the amount of money left the plan in 2015 from payments and rollovers vs. the other contributions that include incoming rollovers that were put into the plan. ($512,859,397 vs. $5,164,848)
You might be able to roll over your GM 401k even if you still work there if you are age 59 ½ or older. That process is called an in-service distribution, and it lets you access more investment choices and other retirement-income strategies as your time horizon to retirement gets shorter. That being said, sometimes it is not the thing to do for certain situations, so you’ll want to look at the pros and cons.
There’s a legitimate way for workers at some companies to plug around five times the amount (approximately $25,000+) of a normal Roth IRA contribution into a Roth, even when their income exceeds the Roth limits.
This type of transaction is sometimes referred to as a Mega Backdoor Roth IRA.
Mega Backdoor Roth is a silly name.
If you want to geek-out, you can read more about the Mega Backdoor Roth thing on IRS Notice 2014-54.
BrightScope rated GM’s Hourly 401(k) with a 73 rating as of July 2017. The highest in the peer group was ranked 90 and the average was ranked 73.
BrightScope has a metric which tries to quantify how many extra years of work an average employee at a company might have to work compared to a counterpart at the highest ranked peer group company. BrightScope came up with a number of up to 11 years for GM Hourly Plan as of July 2017.
WARNING
While I’ve tried to explain all this stuff in an easy-to-read manner, as with most financial topics, the devil is in the details and things can get complicated sort of fast. Just because you have access to something like certain 401(k) funds choices, a brokerage window, or a rollover doesn’t mean that you should do it if there are other financial planning levers you could pull that would be more advantages. If you’ve read this because you’re trying to allocate your 401(k), figure out whether you should roll money into or out of the plan, or are interested in the Mega Backdoor Roth, you’ll need to review how this type of transaction fits in with the rest of your financial picture to make sure you’re not shooting yourself in the foot. Better yet, just get in touch with me and I’ll be able to quickly let you know if you should put the brakes on the idea. It’s quite possible that some other low-hanging fruit might be better for pursuing your goals.
Have Questions About Allocating Your GM Hourly-Rate Employee 401(k), Doing a Rollover, or Looking into a Mega Backdoor Roth Opportunity?
If you have questions please let me know. You can reach me via my contact form here.
Funneling $25k+ a year into a tax-free Roth IRA could be a great way to ratchet up your retirement planning techniques to pursue an even greater retirement lifestyle.
If any of your coworkers might like to know about any of these opportunities or anyone else that might work at a company that could have a 401(k) with these features, please share this post with them. I’m always getting asked how people can take advantage of all the opportunities that exist to bump up their retirement savings and minimize their taxes. And the “Mega Backdoor Roth” is one of the most under-the-radar planning techniques I’ve seen. Just click on the little “share” button to share this article. That way your friends will have an extra tool at their disposal to possibly help make their retirement better.
Thanks for reading this rather long, technical post. I hope it made sense and that you found it beneficial.
To a Better Retirement,
Ryan Poage
