NCPA - National Center for Policy Analysis


August 7, 2006

Congress has passed major pension reform legislation aimed at protecting the benefits corporate America has promised to millions of workers and getting employees to increase their retirement savings, say observers.

  • The 900-page bill takes steps to ensure pensions are adequately funded.
  • It also allows employers to automatically enroll workers in 401(k) plans.
  • Workers could opt out of the plans if they wanted.

That second part is of the greatest importance to young workers, say observers:

  • Pensions, or defined benefit plans, are mostly out of fashion.
  • Younger workers are more likely to have 401(k) plans, or defined contribution plans, though many pass them up.

According to the Employee Benefit Research Institute:

  • A quarter to a third of eligible employees don't take part in 401(k) plans.
  • The number of 20- and 30-somethings passing on 401(k)s is even larger, between 60 percent and 75 percent.

"Most of the attention has been focused on the defined benefit portion of the bill, but in our opinion, the 401(k) reforms are probably the most important part, especially for younger workers and future workers," says Matt Moore of the National Center for Policy Analysis.

"Companies are moving away from defined benefit plans and are moving to defined contribution plans. So 401(k)s are the norm. While it is important to get defined benefit plans shored up and funded, the 401(k) reforms, especially for younger workers, are probably the most important," says Moore.

Source: Amy Baldwin, "Congress OKs 401(k) reforms," Charlotte Observer, August 7, 2006


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