NCPA - National Center for Policy Analysis


October 23, 2007

A finalized regulation to be issued by the Labor Department on Tuesday is expected to significantly boost employee participation in 401(k) retirement plans, says USA Today.

Under the new regulation:

  • The Labor Department estimates that workers will add $70 billion to $134 billion to their retirement savings in the next 27 years because of automatic enrollment, which received a boost from last year's passage of the Pension Protection Act.
  • That law eased a key concern of automatic enrollment, by pre-empting state laws that bar withholding money from paychecks without employees' permission.
  • The law also called for the Labor Department to spell out the default investment options for automatically enrolled workers.

The regulation also clarifies that employers that have previously put worker contributions in stable value funds -- which guarantee a rate of return and have been the standard default investment for automatically enrolled employees -- won't be subject to legal liability, says USA Today. The finalized regulation will take effect 60 days from Wednesday, when it's scheduled to be published in the Federal Register.

The regulation will provide a "meaningful increase" in participation at a time when automatic enrollment is already gaining popularity, says Pamela Hess, director of retirement research at Hewitt Associates, a human-resources consulting firm.  Automatic enrollment increases participation because instead of having to sign up, employees have to take action to opt out.

Source: Kathy Chu, "New regulation expected to raise 401(k) participation," USA Today, October 23, 2007.

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