NCPA - National Center for Policy Analysis


August 2, 2006

A growing number of workers are being steered into retirement savings programs without signing up.  The practice, known as automatic enrollment, is an effort to push people into putting money away for the future, say observers.

Under a pension overhaul bill that the House approved Friday and the Senate is due to take up this week, companies would be granted explicit legal assurance that they could unilaterally shift some of a worker's pay into a retirement savings plan, such as a 401(k) program, unless the employee specifically opted out.

  • Advocates see automatic enrollment as one way to lift the nation's abysmal personal savings rate, which by the government's measure has been negative for 15 consecutive months -- meaning that Americans, on balance, have been spending more than they've earned.
  • Congress' move to bless automatic enrollment also recognizes that employer-sponsored savings plans increasingly are the only type of pension program available to many workers in an era when traditional pensions are being curbed.
  • More than 70 million people are covered by 401(k) or similar savings plans, compared with 44 million beneficiaries of conventional pension plans, under which companies guarantee a set level of monthly income in retirement.

According to a survey by benefits consulting firm Hewitt Associates:

  • About 24 percent of major employers automatically deduct a portion of workers' pay for retirement savings plans, up from 7 percent in 1999.
  • What's more, half the remaining firms in the survey said they were considering moving to automatic enrollment this year.

"This is by far the most important thing in the pension bill," said John C. Goodman, president of the National Center for Policy Analysis.  "It will lead to substantially more people being in the system."

Source: Jonathan Peterson, "Making Saving for Retirement Automatic: More employers are enrolling workers in 401(k) plans without asking them first, and a bill in Congress could accelerate the trend," Los Angeles Times, August 2, 2006.


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