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No Such Thing as a 'Dead' Check


Q: We paid a contractor $1,000 for work he did. He said he lost the check, so we stopped payment on it and issued another. Now we find, some 10 months later, that he has cashed the first $1,000 check we thought we had stopped payment on. I don't think the bank should have honored that dead check. Who's right? --S.S.P .


A: There is no such think as a "dead," "stale," or "dated" check. Once a check is written, banks consider it a contract to pay the amount specified.

You can, however, issue a stop-payment order. These orders are good for just six months and must be renewed--at a cost of at least $10 per incidence--every six months. In your case, the stop-payment order had expired; your contractor probably knew that and assumed you hadn't renewed it. What could or should you have done to protect yourself? When you are dealing with a hostile or potentially dishonest payee, banks advise that you are wise to cancel the account on which the check was written rather than continually pay for stop-payment orders.

Why should this be? Why should a bank honor a check that is months or even years old? A spokesman for the Bank of America reminds us that checks are generally read and paid by machines. These machines don't read dates, just the magnetic codes, and are programmed only to check your account balance to ensure that there is enough money to cover the draft.

Thrifts and S&Ls: Pretty Much the Same

Q: What is the difference between a thrift and a savings and loan? Both types of institutions say they are insured by the Federal Deposit Insurance Corp. Is there any difference in safety? --I.D .


A: Today, in all reality, there is little practical difference between the two types of institutions. Both carry the same insurance on deposits and, with minor exceptions, both make the same types of loans. It wasn't always that way.

Nearly a decade ago, thrift and loans were insured by the Thrift Guaranty Assn., a state-run operation. Because they didn't have federal deposit insurance, they tended to offer higher interest rates to depositors to attract savers. Thrifts are still chartered by the state Department of Corporations, while savings and loans are chartered by either the state or federal government. Savings and loans are regulated by the FDIC and the Office of Thrift Supervision.

However, these differences are largely bureaucratic and mean little to the average consumer. You may find that thrifts tend to offer higher interest rates to consumers. But the reason, the experts say, is more historic than anything else; they traditionally had to make up for not carrying FDIC insurance. They still tend to offer a bit of a premium.

Better-Paid Worker Is Squeezed Out of 401(k)

Q: I have just been notified that as a "highly compensated" employee of my company--a big $66,000 annually--I am eligible to contribute only 0.5% of my gross income to my 401(k) account. Previously I had been contributing 10%. Obviously I am anxious to find another tax-deferred savings plan. Any ideas? --D.R .


A: Unfortunately, there's not a lot you can do at this point, except try to increase enrollment in your company's 401(k) plan from among employees in the lower wage categories. The reason your contributions have been reduced stems from the federal government's insistence that tax-deferred savings plan not discriminate against lower-paid workers.

You can easily understand that better-paid workers would be more likely to take full advantage of a tax-deferred savings plan than employees who live from paycheck to paycheck. But because the government doesn't want 401(k) plans to become savings accounts strictly for the rich, it has imposed a series of "discrimination" tests that the plans must pass each year to ensure that lower-paid workers are participating along with their better-paid colleagues. Plans flunking the test must refund contributions made by the more highly paid employees and restrict additional contributions from them. That's what happened to you.

One reason many companies offer to match a portion of their employees' contributions to 401(k) plans is to lure lower-paid workers into joining. Any why shouldn't they? If your employer offers to match your contributions, or any portion of them, employees who don't join are passing up free money. It's that simple. If your employer matches contributions, you could offer to mount a public relations campaign within the company to spread the word among the workers. If enough new members from the lower-paid ranks are drawn in, your contribution level could be increased.

Beyond that, there's not much else you can do to save money on a pretax basis. Of course, you can contribute $2,000 a year, after tax, to an individual retirement account and watch it grow on a tax-deferred basis. Your 401(k) plan might also allow after-tax contributions that also will generate tax-deferred interest; check with your plan administrator.

Another possibility--perhaps it's a long shot--is to persuade your employer to establish a "non-qualified" plan for highly compensated employees whose 401(k) contributions were restricted. You would be wise to consult your employee benefits administrator.

Helpful Hints for Boosting Your Savings

* As boomers age, that adage about a "penny saved" becomes more critical. Times on Demand has compiled four articles and two charts with tips on building your savings. Included is a work sheet you can use to determine how much you should be saving each year toward your retirement. To purchase, call (800) 440-3441. Order Item No. 2840. To order by mail, send a check to Times on Demand, P.O. Box 60395, Los Angeles, CA 90060. Cost: $6.50, plus $1.50 delivery. Please allow two weeks for mail delivery.

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