NCPA - National Center for Policy Analysis

NEW OPPORTUNITIES FOR RETIREMENT

August 23, 2006

Up until now, employees have participated little in their retirement planning.  And when it comes to saving for retirement, we've got many opportunities, but more than ever, our retirement financial security is up to us, says Humberto Cruz of the South Florida Sun-Sentinel.

The new Pension Protection Act of 2006 makes it easier for workers to contribute more money to their retirement plans, including employer-sponsored "defined contribution" plans such as 401(k)s and 403(b)s.  Provisions include:

  • Automatic enrollment of new employees into 401(k) and 403(b) plans.
  • Automatic increases of contribution rates when workers receive a raise.
  • Automatic investment in diversified portfolios.
  • Provisions making it easier for employees who hold company stock in their plans to sell the stock to seek greater diversification.

"This is the first step in making 401(k)s more accessible and valuable to workers," says Matt Moore, senior policy analyst with the National Center for Policy Analysis (NCPA). 

Automatic enrollment alone could boost participation from the current 66 percent of eligible employees to 92 percent, according to estimates by the Employee Benefit Research Institute and the Investment Company Institute.

Making a lifetime annuity the default payout option when a worker retires -- another proposal endorsed by the NCPA -- was not included in the law, but proponents are hopeful the issue can be revived in the future.

Source: Humberto Cruz, "Look for law to boost defined contribution plans," South Florida Sun-Sentinel, August 23, 2006.

 

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