Personal Finance

Musk, Ramaswamy call remote work a ‘Covid-era privilege.’ Some economists disagree

Published

4 days ago

January 2, 2025

From left, Elon Musk, House Speaker Mike Johnson and Vivek Ramaswamy arrive for a meeting on Capitol Hill on Dec. 5, 2024.

Al Drago/Bloomberg via Getty Images

When Elon Musk and Vivek Ramaswamy laid out their vision for slashing the size of the federal government, they touted plans to bring workers back to the office full-time.

Working from home was a “Covid-era privilege,” the duo, appointed by President-elect Donald Trump to lead a new Department of Government Efficiency, wrote in a Nov. 20 Wall Street Journal op-ed.

But labor economists don’t see the pandemic-era uptick in remote work as a passing fad.

Instead, they view it as an enduring feature of the U.S. job market.

“Working from home is here to stay,” said Nick Bloom, an economics professor at Stanford University who studies workplace management practices.

Amazon, Washington Post curtail remote work

To be sure, many big name employers have curtailed remote work.

In September, Amazon CEO Andy Jassy announced a full-time in-office policy for corporate staffers starting in 2025, for example. The Washington Post recently announced a similar policy. UPS, Boeing and JPMorgan Chase have called some employees back to the office five days a week.

Others have cut the number of remote workdays as part of a “hybrid” arrangement, where employees split time in and out of office. Disney, for example, required four days a week of in-office work starting in 2023.

Companies requiring 5 days in office feels like 'a time gone by', says Dartmouth's Paul Argenti

However, data shows remote work hasn’t fizzled out.

More than 60% of paid, full workdays were done out of the office at the peak in early 2020 — up from less than 10% before the pandemic, according to WFH Research, a project run jointly by researchers from MIT, Stanford, the University of Chicago and Instituto Tecnológico Autónomo de México.

That share has since fallen by more than half. However, it has remained flat at between 25% and 30% for two years, according to WFH Research data as of December.

“Levels of working from home have been totally stable since January 2023,” Bloom said.

About 8% of job listings on Indeed advertised remote or hybrid work in November, down from a high of 10% in February 2022 but well above the 3% share in 2019.

“Remote work isn’t going away, but it is likely past its peak,” said Allison Shrivastava, an economist at Indeed.

Remote work is ‘hugely profitable’ for companies

Remote work — primarily hybrid work — has staying power because it’s “hugely profitable” for companies, Bloom said.

For one, workers’ productivity doesn’t seem to increase if they come to the office more than three days a week, said Bloom, citing research he co-authored that was published in the journal Nature in June.

But workers value the ability to work from home. Additional days mandated in the office increase employee turnover, which is “hugely costly” to firms, Bloom said.

Leaving workers’ output unchanged and reducing attrition therefore boosts profits, he said. A typical large company with tens of thousands of employees can increase profits by tens of millions of dollars a year by reducing turnover costs, he said.

A ‘covert’ way to lay off workers?

Musk and Ramaswamy aim to require federal employees to come back to the office full-time precisely because they expect the policy would increase attrition.

“Requiring federal employees to come to the office five days a week would result in a wave of voluntary terminations that we welcome,” they wrote in the November op-ed.

Remote work isn’t going away, but it is likely past its peak.

Allison Shrivastava

economist at Indeed

Companies may also be using return-to-office mandates as a “covert strategy for headcount reduction,” according to a recent ZipRecruiter employer survey.

Some organizations cite cultural and productivity concerns as the primary reasons for such a policy, but it seems that’s “rooted more in perception than data,” ZipRecruiter said.

Some officials have pushed back on such notions, however.

Jassy, Amazon’s CEO, denied the five-day in-office policy amounted to a “backdoor layoff,” he said in a meeting, according to notes obtained by CNBC. The decision “is very much about our culture and strengthening our culture,” he said.

Personal Finance

This 401(k) feature allows big savers to get their full employer match

Published

2 hours ago

January 6, 2025

Business Finance News

Gipi23 | E+ | Getty Images

A penalty ‘for maxing out too early’

Lump-sum investing, or putting larger amounts of money to work sooner, maximizes time in the market, which can increase growth potential, according to research from Vanguard released in 2023.

But it’s important to understand your 401(k) plan before front-loading contributions because not all plans offer a true-up feature, experts say.

Roughly 67% of 401(k) plans that offer matches more than annually had a true-up in 2023, according to a yearly survey released by the Plan Sponsor Council of America in December.

Clients have been “penalized for maxing out too early” without a true-up, which meant “leaving money on the table,” said CFP Ann Reilley, principal and CEO of Alpha Financial Advisors in Charlotte, North Carolina. She is also a certified public accountant.

For example, let’s say you’re under age 50, making $200,000 per year, and your company offers a 5% 401(k) match without a true-up.

With 26 pay periods and a 20% contribution rate, you’ll reach the $23,500 deferral limit for 2025 after 16 paychecks and only receive about $6,200 of your employer match. In this case, you’d miss roughly $3,800 of your employer 401(k) match by maxing out early without a true-up.

You can learn more by checking your 401(k) summary plan description, which outlines key details about the account, Reilley said.

Higher deferrals, catch-up contributions for 2025

Of course, many investors can’t afford to max out employee deferrals amid competing financial priorities.

Only about 14% of employees maxed out 401(k) plans in 2023, according to Vanguard’s 2024 How America Saves report, based on data from 1,500 qualified plans and nearly five million participants.

Personal Finance

Social Security Fairness Act brings retirement changes for some pensioners

Published

2 hours ago

January 6, 2025

Business Finance News

President Joe Biden after he signed the Social Security Fairness Act at the White House on Jan. 5 in Washington, D.C.

Kent Nishimura | Getty Images News | Getty Images

President Joe Biden on Sunday signed the Social Security Fairness Act into law, clearing the way for nearly 3 million public workers including teachers, firefighters and police to see an increase to their Social Security benefits.

Now, two provisions that reduced Social Security benefits for certain public workers who receive pensions — the Windfall Elimination Provision, or WEP, and the Government Pension Offset, or GPO — have been eliminated.

The WEP and GPO were put in place more than four decades ago. When the provisions were created, the goal was to ensure that workers who earn public pensions from employment where they did not pay into Social Security, but who also qualify for Social Security benefits through other work, receive the same payout as workers who pay into Social Security for their entire careers.

The WEP was enacted in 1983 and reduces Social Security benefits for some workers who also receive pension or disability benefits from work where Social Security payroll taxes were not withheld.

The GPO was enacted in 1977 and reduces Social Security benefits for certain spouses, widows and widowers who also receive income from their own government pensions.

How much Social Security benefits may increase

The new law affects benefits payable after December 2023.

More than 2.5 million Americans will receive a lump-sum payment of thousands of dollars to make up for the shortfall in benefits they should have received in 2024, Biden said on Sunday.

Eliminating the WEP will increase monthly Social Security benefits for 2.1 million beneficiaries by $360, on average, as of December 2025, the Congressional Budget Office has estimated.

Eliminating the GPO will increase monthly benefits by an average of $700 for 380,000 spouses and by an average of $1,190 for 390,000 surviving spouses as of December 2025, according to CBO.

“The Social Security Administration is determining the timelines for implementing this new law,” a Social Security spokesperson told CNBC on Monday. “We will provide more information on our website as it becomes available.”

For now, beneficiaries should make sure the Social Security Administration has their current mailing address and direct deposit information on file, according to the agency. That information can be updated online or by calling or visiting a Social Security office.

WEP, GPO often came as unpleasant surprise

The WEP and GPO benefit reductions often came as an unpleasant surprise to affected beneficiaries during the retirement planning process because the provisions were often not well publicized, said Abrin Berkemeyer, a certified financial planner and senior financial advisor at Goodman Financial in Houston.

“It should be a windfall for quite a lot of folks,” Berkemeyer said of the change.

For some beneficiaries affected by the change, the extra income will be life-changing, according to CFP Barbara O’Neill, owner and CEO of Money Talk, a provider of financial planning seminars and publications.

O’Neill, a former Rutgers University professor, has been personally affected by the WEP.

Once she started to claim her pension, she notified the Social Security Administration. At that point, her monthly benefits were reduced, but it took about five months for the change to be processed, prompting the agency to claw back the benefits she was overpaid during those months.

Maximizing your Social Security benefits

Now that the WEP and GPO provisions have been eliminated, that takes away a common source of overpayments, where beneficiaries owe money to the Social Security Administration after receiving more money than they were due. The provisions have prompted overpayment issues due to a lack of available data on pensions from noncovered employment, according to the Congressional Research Service.

Generally, the elimination of the WEP and GPO will make retirement planning simpler, experts say.

The extra money the change provides to beneficiaries puts less pressure on them to generate income from other assets they may have, said Michael Carbone, a CFP and partner at Eppolito, Carbone & Co. in Chelmsford, Mass.

What’s more, it also eliminates the need for the complex calculations the provisions required in order to gauge benefit income, said CFP Andrew Herzog, associate wealth manager at The Watchman Group in Plano, Texas.

“That certainly makes things easier,” Herzog said. “It gives people a sigh of relief.”

Personal Finance

Are target-date funds — the most popular 401(k) investment — right for you?

Published

4 hours ago

January 6, 2025

Business Finance News

Melkinimages | E+ | Getty Images

Target-date funds are a way for 401(k) participants to put their retirement savings on autopilot — and they capture the lion’s share of investor contributions to 401(k) plans.

About 29% of assets in the average 401(k) plan were held in TDFs as of 2023, according to the Plan Sponsor Council of America, a trade group. That share is the largest of any fund category, and is up from 16% in 2014, according to PSCA data.

By 2027, target-date funds will capture roughly 66% of all 401(k) contributions, and about 46% of total 401(k) assets will be in TDFs, according to a 2023 estimate by Cerulli Associates, a market research firm.

That popularity is largely due to employers’ broad adoption of TDFs as the default investment for workers who are automatically enrolled into their company 401(k) plan.

While the funds carry benefits for many investors, they may have drawbacks for others, financial advisors said.

“Target funds have a place for some investors, but they certainly aren’t and shouldn’t be used for everyone,” said Winnie Sun, managing partner of Sun Group Wealth Partners, based in Irvine, California, and a member of CNBC’s Financial Advisor Council.

How target-date funds work

Financial experts generally recommend investors de-risk their nest eggs as they age — typically by shifting from more aggressive (and volatile) holdings like stocks to more stable ones like bonds and cash.

TDFs do this automatically, based on an investor’s estimated year of retirement.

401(k) doesn't seem to have the same fanbase that social security has, says Allison Schrager

For example, a 35-year-old investor who expects to retire in 30 years would likely choose a 2055 fund. A 55-year-old may pick a 2025 fund. (The funds typically come in five-year increments.)

The fund’s asset allocation slowly becomes more conservative in the years leading up to, and sometimes after, that retirement year.

A one-stop shop for 401(k) savers

Advocates often laud the simplicity of TDFs, known as a one-stop shop for 401(k) savers who may not have the time or knowledge to adequately manage a custom portfolio.

“From where I sit, target-date funds have been nothing short of the biggest positive development for investors since the index fund,” Christine Benz, director of personal finance and retirement planning at Morningstar, wrote in June.

They take important decisions like asset allocation and investment selection “wholly out of investors’ hands,” Benz wrote.

TDFs amount to inexpensive and reasonable investment advice for people who may not be able to afford hiring an advisor and who may be prone to making “kooky” investment choices, she wrote. TDFs also discourage behavior known to erode investor returns, like buying high and selling low, she added.

“They’re designed to be easier-to-manage investments for those who just prefer simplicity and more convenience,” Sun said.

There may be drawbacks

However, there are some reasons why TDFs may not work for certain investors, especially those with ample savings outside their 401(k) plan or who want to take a more hands-on approach, advisors said.

For one, just because investors expect to retire around the same age doesn’t mean the same asset allocation is appropriate for each of them.

“What if you’re more conservative or instead prefer more growth, aggressive tech investing, or prefer to invest in socially responsible investments?” Sun said.

From where I sit, target-date funds have been nothing short of the biggest positive development for investors since the index fund.

Christine Benz

director of personal finance and retirement planning at Morningstar

Asset managers have different investment philosophies. Certain fund families may be more aggressive or conservative than others, for example.

Employers generally only offer TDFs from one financial company, and the funds that are offered may or may not align with an investor’s risk profile, experts said.

“It is important that a person understands how much risk they are taking in their target-date fund,” said Carolyn McClanahan, a certified financial planner and the founder of Life Planning Partners in Jacksonville, Florida.

“For example, you would think a 2030 target-date fund would be conservatively allocated, but most are 60% equities because they assume you’ll be drawing off those funds over a long period of time,” said McClanahan, a member of CNBC’s Advisor Council.

Fight over fiduciary standard: What 401(k) participants should know

Investors may be able to build a less expensive portfolio on their own by using a mix of index funds, though this approach would take more work on investors’ part, she said.

Additionally, TDFs don’t allow for “tax location” of different assets, McClanahan said.

This aims to boost after-tax investment returns by strategically holding stocks and bonds in certain account types.

For example, assets with potential for high growth are well-suited for Roth accounts, since investment earnings are generally tax-free in retirement, said McClanahan.

Experts also generally recommend holding many bonds and bond funds in tax-deferred or tax-exempt accounts.

Despite shortcomings for certain investors, “do target-date funds help investors who are unaware of the basics of investing find their way to a sane investment mix given their life stage?” Benz wrote. “A thousand times yes.”