Money Buzz 05/05

Male vs. female startup costs, smaller workforce=larger income and more
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3 min read

This story appears in the May 2005 issue of Entrepreneur. Subscribe »

Card Game

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.

Lights Out

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


in startup capital, while those started by women require only


Statistic Source: GEM Financing Report
Small-business owners with 25 or fewer employees have a


higher income than the general population.
Statistic Source: Experian

Jennifer Pellet is a freelance writer in New York City specializing in business and finance.

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