"AUTO-ENROLL" RETIREMENT PLANS TAKE OFF
July 12, 2007
Your boss may be planning to make you save for retirement. Next year, more workers will find that their companies are automatically enrolling them in the company retirement plan, deducting money from their paychecks. Workers who don't choose investments will increasingly find their money shuttled to a so-called lifecycle or target-date fund, in which the investment mix automatically changes over time. Many employers expect to increase the fraction of employees' pay contributed toward retirement as salaries rise.
Most of these plans "are set up so people don't have to make decisions," says Stephen P. Utkus, principal at the Vanguard Center for Retirement Research.
And that's exactly the effect Congress wanted when it passed the Pension Protection Act of 2006. The reason: Despite the disappearance of traditional pensions, millions of Americans don't save for retirement because of inertia, fear of failure or inadequate income.
- In 2006, Fidelity saw in the plans it administers a 95 percent increase in auto enrollment and a 26 percent increase in plans that automatically increase employee contributions.
- A Fidelity poll of 400 plan sponsors found that 44 percent are considering adding auto enroll, 27 percent may add automatic increases in contributions and 31 percent are considering lifecycle funds as the default option.
A survey released last month by the Employee Benefit Research Institute and Mercer Human Resource Consulting found that employers are embracing key provisions of the Pension Protection Act that allow them to ensure that workers save:
- The survey of companies with defined-benefit and defined-contribution plans found that 66 percent of businesses that sponsor a defined-benefit plan have or plan to add auto enrollment.
- Not-for-profits had the lowest adoption rate at 32 percent and the financial/banking industry had the highest at 88 percent.
Source: Jilian Mincer, "Auto-Enroll Retirement Plans Take Off; A 2006 Law Helps Employers Ensure Their Workers Save," Wall Street Journal, July 11, 2007.
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