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  • 401(k) and IRA Leaks Are Significant Drain on Retirement Wealth
    Retirement plans are leaking assets, posing a real threat to the retirement readiness of many Americans.

    That’s the conclusion of a new paper, The Impact of Leakages From 401(k)s and IRAs. Researchers Alicia Munnell and Anthony Webb with the Center for Retirement Research at Boston College estimate that current rules that allow leakage to occur reduce aggregate 401(k) and IRA retirement wealth by at least 20 percent. The study also finds:
    • About 1.5 percent of assets leak out of the 401(k)/IRA system each year. (The study defines leakage as “any type of pre-retirement withdrawal that permanently removes money from retirement savings accounts.”)
    • Of the different forms of leakages, in-service withdrawals and cashouts appear to represent the most significant source of leakages, while loans created a measurable but relatively small leakage.
    Read the paper
  • Auto-Enrollment and Matching Contributions
    A new study by Barbara A. Butrica of the Urban Institute and Nadia Karamcheva of the Urban Institute and the Institute for the Study of Labor (INZ) suggests that employers with auto enrollment plans are setting the default contribution rate well below the rate needed for the maximum match, allowing them to contribute to the accounts of more workers without necessarily increasing their costs. Key findings:
    • Plans with automatic enrollment have, on average, higher participation rates. But the study finds “no evidence that total compensation costs differ significantly between firms with and without automatic enrollment.”
    • There is “no evidence that employers with opt-out 401(k)s have defined contribution costs that are any different from employers with opt-in 401(k)s, or any evidence of a crowding-out effect between defined contribution costs and other forms of compensation as a result of automatic enrollment.”
    • However, plans with automatic enrollment offer match rates that are on average 11 percent lower than those without automatic enrollment. To receive the maximum match, workers would need to contribute an average of 5.1 percent, well above the default contribution. This allows companies to manage costs while increasing enrollment.
    Read the Study
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