OUT OF THE RED: 401(K) SIGN-UP MAY SOON BE EMPLOYERS' CALL
July 19, 2006
If you aren't participating in your company's 401(k), your employer might just sign you up, say observers.
Lawmakers think this is a good idea -- an eat-your-vegetables approach to retirement savings. Congress is considering legislation that would encourage employers to automatically enroll workers -- with some sort of contribution -- in their 401(k) plans. Companies could also increase employees' contributions yearly to a certain point.
- Studies show that between a quarter and a third of eligible employees don't take advantage of 401(k) plans.
- The number of 20- and 30-somethings passing on 401(k)s is even bigger: between 60 percent and 75 percent, according to the Employee Benefit Research Institute in Washington.
The 401(k) policy is part of broader pension reform legislation passed by the House of Representatives and Senate earlier this year. The legislation is in conference to resolve differences between the two measures.
Employees could opt out of their 401(k) -- which is why these plans are also called opt-out 401(k)s. The thinking is that many wouldn't bother to do that.
Automatic enrollment in 401(k)s came about because "many people are not saving enough already," said Matt Moore of the National Center for Policy Analysis, a nonpartisan think tank in Dallas. The center worked with the Brookings Institution and congressional offices to develop policies for automatic 401(k) enrollment.
When employees are automatically enrolled in opt-out 401(k) plans, participation rates can increase substantially, according to a study of one large company's workers.
- Before it implemented automatic enrollment, 37 percent of new employees were enrolled in the company's 401(k) plan; 86 percent after.
- Among younger employees (ages 20-29): 25 percent before; 83 percent after.
- High-income (more than $80,000): 68 percent before and 94 percent after.
Source: Amy Baldwin, "Out of the Red: 401(k) sign-up may soon be employers' call," Fort Wayne News-Sentinel, July 19, 2006.
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