Business & Economics: August 2006 Archives
In response to my previous post about Google's interview process, one Dr. Gene A. Nelson left a comment starting with:
As an experienced American citizen programmer with a Ph.D., I hope that you recognize that the real purpose of these "tests" is to discriminate on the basis of age and national origin - specifically to discriminate against older American citizens in favor of "fresh (inexpensive) young blood" from places like India and Communist China. Why?? So that the corporate owners reap higher profit margins.
That's an interesting claim, but I tend to be slow to buy in to conspiracy theories. Further thoughts?
Bankers in the UK are introducing a new kind of mortgage that spans generations. Apparently these types of mortgages are common in Japan and other areas, but I've never heard of them.
Parents will be able to hand down their home loans onto their children under a radical shake-up of Britain's mortgage industry which starts today.In a revolutionary move, homeowners would never need to repay a single penny of their mortgage before they die.
Instead, the debt will be passed to their offspring, allowing them to slash the amount of inheritance tax they would have to pay.
If housing prices rise faster than the mortgage interest rate, these types of loans could be incredible investment vehicles. Stocks tend to outperform real estate, but it's a lot harder to borrow huge sums of money to purchase stocks. So what happens when you die?
For example, a parent could have an interest-only mortgage of £100,000 on their home which is worth £150,000. When they die, the mortgage and the house would pass to their children. The children would only have to make a decision about whether or not to take on the mortgage when their parents died.If they did not want the mortgage, it could be settled by selling the house or repaid by other means, such as an insurance policy or the sale of other assets. If they did agree, they could continue to pay the monthly interest payments which their parents were paying before their death - and keep the house. It would have an inheritance tax perk because only £50,000 - the value of the house excluding the mortgage - would be included in their parent's estate.
Of course, a simplified tax system could eliminate the need for all these twists and turns.
President Bush is poised to sign the Pension Protection Act of 2006 now that it's passed both houses of Congress. The Act affects employers and employees in some significant ways, most notably by retaining the freedom of choice created by the 401(k) revolution but allowing for employers to make choices for workers who are too lazy to do the work themselves.
Employers can boost participation in their retirement plans by automatically enrolling workers. Individuals could decline to participate but must formally decide to opt out. In addition, employers can boost worker contributions over time so that the savings grows along with the employee's salary. This tackles the rampant apathy Americans have about saving and turns inertia into a positive. There is a wide range of statistics available on the subject, but most boil down to this: About half of all eligible workers sign up for their retirement plan; in automatic-enrollment situations, participation rises to more than 85% because few workers stop the saving process. ...Someone joins a company, and is enrolled automatically in the retirement plan. The worker doesn't bother to take an active role and, yet, the longer they work, the more money they pile up.
Says Maggioncalda: "It's going to feel a lot like the old pension plans, because 20 years from now, you'll wind up with a lot of money to use in retirement."
It will feel even more like a pension if consumers follow up with one other big change in the reforms. Among the many provisions of the pension-reform act is clarification of the "safest available annuity" standard. This is expected to encourage employers to offer an annuity distribution option from 401(k) and other retirement plans. That means that when someone reaches retirement, they'll have a choice to put the money they've accumulated to work buying an annuity, which would make them regular payments for life.
But those savers who want to control their own assets will have the power to do so.
There are some other changes that might have huge ramifications down the road, such as the expansion of the tax-free rollover "designated beneficiary" provisions.
Perhaps most interestingly, the act extends extremely favorable tax treatment of qualified plan distributions to beneficiaries following the death of the employee. Under current law, spouses named as beneficiaries of qualified retirement plans can roll the plan assets into their own IRA tax-free. But other beneficiaries, including children or unmarried partners of deceased employees, cannot. Instead, they must withdraw taxable distributions from the plan within a certain period of time. The act extends the tax-free rollover option to anyone who qualifies as a "designated beneficiary" under the provisions.With this provision, families who plan carefully will be able to preserve substantial amounts of qualified plan assets for generations, without paying income tax. Although an employee is required to take taxable minimum distributions at age 70 or 71, upon death, the remaining assets could be left to a child or grandchild, who could then roll the assets over into an IRA. No distributions would be required from that IRA until the child or grandchild turned 70 or 71. Without any checks on the law's provisions, repetition of this strategy could create immense dynasties, composed primarily of qualified plan assets that would escape income tax for decades or even centuries.
In all, these changes look good for the American worker, whether he has the forethought to save for himself or not; only employees who actively undermine their retirement by opting out of their employer's savings plan (and the peripheral workers who are poor planners and self-employed) will be left in the cold.
Does anyone know how much work corporate executes actually do? I imagine it varies quite a bit, but do they tend to work really long hours and travel a lot? Or are most executive jobs pretty cushy?
