New! Smart Automatic Retirement Plan Investing
This new RMS publication will help employees make the most of their employer’s automatic retirement plan. The brochure provides valuable educational information including:
New Year, Fresh Optimism on 401(k)s
A new-year article in Employee Benefit Advisor reports that restoring matching contributions is likely to increase the number of employees investing in 401(k)s in 2012—but more can be done to improve both participation and savings rates. One area that plan sponsors and advisers should examine is automatic enrollment. Read the Employee Benefit Advisor article
For Employees: Weathering Tough Economic Times—12 Tips for 2012
Tough economic times have taken a toll on many Americans over the last couple of years. But making sound financial decisions and saving for the future can help weather financial storms. These tips from the FINRA Investor Education Foundation that can help keep employee finances on course in 2012.
Start a Rainy Day Fund. Set aside one month of your current salary (and work up to three months) in a federally insured savings account.
Check Your Credit Report and Score. Request a copy of your free credit report. Call (877) 322-8228 or visit www.AnnualCreditReport.com.
Shop Around for Financial Products. Comparison shopping for financial products is as crucial as shopping around for a television or phone plan.
Don’t Leave Money on the Table: Contribute to Your 401(k). Contribute enough to get the full employer match, if one is offered.
Automate—and Escalate—Your 401(k)
An unstable market means you need to save and invest more, not less. This may be especially true for workers whose companies have automatically enrolled them in a 401(k). Some experts worry that people who are signed up involuntarily tend to assume they're all set and never make any adjustments. Auto escalation can help. The Employee Benefit Research Institute predicts that a 25-year-old earning $34,000 a year, who auto-escalates to 6 percent, will accumulate 28 or 29 percent more by age 65 than if she had stayed at a 3 percent default rate, assuming she earns between $100,000 and $150,000 at retirement. Read the US News and World Report’s article.
About the Automatic IRA
The Automatic IRA has been proposed as a way for the roughly half of U.S. workers that are not offered a 401(k) or any other type of employer-sponsored plan to save for retirement.
Automatic IRA Resources
PSCA Study—Automatic Enrollment Increased in 2010
The Plan Sponsor Council of America (PSCA) released its 54th Annual Survey of Profit Sharing and 401(k) Plans. This latest survey shows that participants are increasingly using automatic enrollment to help employees save for retirement.
41.8 percent of plans have an automatic enrollment feature, compared to 38.4 percent a year ago.
Of those plans that have an automatic enrollment feature, 82.3 percent use this feature with new hires only and 17.7 percent use it for all non-participants.
The most common default deferral is 3 percent of pay, and the most common default investment option is a target-date fund.
Workplace Education for New Hires
A new study by North Carolina State’s Robert Clark and Melinda Morill documents how employer-provided financial education for newly hired workers affects participation in retirement savings plans. Several findings emerge.
There is strong evidence that employees respond to match incentives—so the date when the employer match begins should be an important “teachable moment” for employers to reach out to employees.
Auto-enrollment programs increase retirement savings plan participation, and there is little reduction in the participation rates over time. However, workers who were automatically enrolled through a plan whose automatic savings rate was lower than the full match resulted in many workers not taking full advantage of the employer match. Best practice? An automatic plan that sets employee contributions at a level at or above the company match.
