18, 2000. For those employees who had sunk a considerable portion of their retirement money in the company’s stock, it looked like they had made a profitable decision. Unfortunately, things didn’t stay so rosy. Enron’s stock began to slide in February of 2001. Although it came back a little in April of that year, the stock price continued to go down. It hovered in the $50 range from March to early June of 2001, but things just got worse. By December of 2001, the stock price was less than $1 per share. Imagine your retirement money doing that. So think very carefully before you invest 100 percent of your retirement money in your company’s stock. Investing a portion of your contribution, say 5 to 10 percent, is perfectly healthy. Plus, if your employer offers a match of your contribution with company stock, you really shouldn’t add to that amount by investing your con- tribution in company stock. Even the best companies can have prob- lems with their stock prices. You just don’t want to be on the receiving end of these problems. By diversifying your retirement plan, you won’t be.
Interestingly, nonprofit corporations can sponsor profit-sharing plans. At one time an employer could only make contributions to a profit-sharing plan if it had either current-year or prior-year retained profits. This was not a major limitation unless the employer had consistently been unprofitable. The profit require- ment was eliminated from the Internal Revenue Code several years ago. It would be more precise to call these plans discretionary defined contribution plans, but the term profit-sharing plan has
been used for many years.
THRIFT AND SAVINGS PLANS.
Thrift and savings plans offer the
same type of tax treatment that other types of qualified plans do, with one exception. Although any contributions made by the employer are not included in an employee’s gross income for the year in which they were made, any contributions made by the employee are still counted in his or her gross income for that year. So any money you put into your thrift and savings account will still be con- sidered as income, and you will face ordinary income tax on those amounts.