Wouldn't it be nice if consumers could avoid costly credit card balances by financing their own debt? A new retirement credit card aims to let retirement plan- holders do just that. The concept is simple--employees with 401(k) savings plans purchase a retirement credit card for a $50 annual fee. The card then enables them to borrow up to $10,000, or 40 percent of the money in their retirement accounts--whichever is less--for any type of purchase they want to make. Cardholders pay relatively modest interest--prime plus 2.9 percent--and receive monthly statements like a regular credit card. Ideally, the card would boost 401(k) plan participation and enable consumers to replace high-interest credit cards with a more economical card.
But misuse would offset that benefit. "The risk is that people don't replace other credit cards; they just add [this one] and get deeper into debt," says Alicia H. Munnell, director of the Center for Retirement Research at Boston College. Such overextension carries a hefty penalty: Employees who fall three full months behind on payments lose the use of the card, and the balance of the loan is converted to a 401(k) withdrawal subject to the resulting income tax and penalties.
The number of companies deregistering from major stock exchanges (or "going dark") tripled from 2002 to 2003, according to a 2004 study of the causes and consequences of voluntary SEC deregistrations. What's more, in early 2004, numbers continued to be high, says Christian Leuz, a Wharton accounting professor who co-authored the study.
The reason? Leuz says companies cite the costs of conforming to the more stringent reporting requirements mandated by the SEC and detailed in the Sarbanes-Oxley Act of 2002 in the wake of accounting scandals. "Some smaller companies estimated that complying with SOX cost them as much as $500,000," he says. But Leuz adds that some companies may have less pragmatic reasons: "We found a subset of companies for which less benign motives seemed possible--namely that controlling insiders pursued deregistration to evade outside monitoring and additional scrutiny."
So is the act an investor's watchdog--or a smotherer of entrepreneurial companies? "SOX is worrisome if its costs are prohibitive for the entrepreneurial firms that inject new blood into the economy," notes Leuz, who argues for a tiered approach to regulatory requirements. "The 'one size fits all' regulation we have may be well-suited for bigger firms, but it's not necessarily appropriate for smaller companies."
|Businesses started by
men require an average of
$65Kin startup capital, while those started by women require only
Statistic Source: GEM Financing Report
with 25 or fewer employees have a
21%higher income than the general population.
Statistic Source: Experian
Jennifer Pellet is a freelance writer in New York City specializing in business and finance.