The world of automatic 401(k)s is continually changing. Stay current with the latest news.
Costly Financial Mistakes
Chris Mathews writes in Fortune magazine that Americans throw away billions of dollars through "financial stupidity." And by that he means everything from not taking advantage of home refinancing opportunities to making poor retirement planning decisions.
But he notes there is plenty of research that shows that creating systems where it’s easier to make the right financial selections leads to more people making good choices. Private companies, he argues, are partly responsible for making their employees’ retirements as comfortable as possible.
That means "setting up automatic enrollment, automatic escalation of their contributions, and, most importantly, not giving the option to invest in high-fee funds. It also means that employers need to make sure that their employees have the knowledge to make the right choices."
Read the Article
Automatic Escalation in Public Sector Retirement Plans
8 Things to Know About Automatic Plan Features
Automatic 401(k) Plan Features Still “Hot” in 2014
Autopilot plans are a good solution that continues to catch on, writes Phyllis Furman of the New York Daily News. For example, nearly 25 percent of Fidelity's plans offer the service, up from 17 percent four years ago, with the expectation that this number will continue to grow. Auto-enrollment and auto-escalation have been on the upswing since the passage of the Pension Protection Act in 2005.
Other hot trends? Roth 401(k)s and "self-directed brokerage windows" that allow you to invest in funds outside of your company's fund lineup.
Read the Article
Fixing the Holes in Your 401(k)
Employer-sponsored retirement plans are getting better, but they've still got plenty of holes.
One potential leak is automatic enrollment, which can be a double-edged sword. Auto-enrollment has helped raise participation rates to 78 percent, up from 67 percent in 2005, when the Pension Protection Act was passed.
Read the Article
Five 401(k) Fixes
Forbes contributing editor John Wasik offers useful guidelines that debunk some myths that trouble 401(k) investors. One guideline addresses a misconception about automatic features:
- Don’t think that the automatic deferral rate will finance a dignified retirement. Even though the average automatic deferral rate has risen to nearly 4 percent, it’s still not enough.
- How do you address the issue? Design the plan to allow yearly automatic increases in the deferral rate.
Leakage: Take It or Leave It
Nevin Adams of the Employee Benefit’s Research Institute discusses leakage in a thoughtful Benefits Pro commentary.
401(k) Balances Up More Than 10 Percent: Fidelity
Average 401(k) balances among Fidelity clients were up more than 10 percent during the second quarter, despite a bumpy stock market that left many investors on edge.
- The average 401(k) balance came in at $80,600 at the end of the second quarter of 2013—up more than 10 percent from the same time last year, according to a report released Tuesday by Fidelity, which represents 12.4 million U.S. workers.
- Balances for those who have been employed and remained in a 401(k) for the past 10 years were up nearly 19 percent, to $211,800.
How to Save More for Retirement Without Really Trying
Jason Zweig writes in the Wall Street Journal that while automatic enrollment has brought millions of new savers into 401(k)s, most employers set the default contribution rate at three percent. Because of inertia, most workers leave it there. The solution is to put savings increases on autopilot as well.
"Save the Max" 401(k) Calculator Keeps Employee Retirement Savings on Track
The Financial Industry Regulatory Authority (FINRA), an RMS founding partner, launched a new 401(k) 'Save the Max' Calculator to determine how much to put away each pay period to contribute the IRS maximum limit in 2013.
Try it and share it!
Opinion—Automatic Enrollment Over Tax Breaks
Bloomberg Businessweek contributing editor Chris Farrell thinks there is a better way of boosting retirement savings than tax breaks and savings caps. How about this idea instead: Repeal the tax break associated with 401(k)s, IRAs and similar tax-sheltered plans. Substitute automatic enrollment for the subsidies.
Eliminating the subsidy would boost the government’s budget—and the main beneficiary of the different approach would be average workers.
Read the Commentary
Lack of Automatic Enrollment Means Lower Employee Participation Rates
Companies without auto enrollment are more likely to report lower employee participation rates than those with automatic enrollment, according to a study released by WorldatWork and the American Benefits Institute. Key findings from a poll of almost 500 companies:
Read the Study
- 37 percent of companies with auto enrollment reported participation in the 80-89 percent range, but only 21 percent of companies without auto enrollment report similar participation.
- Further, 36 of those with auto enrollment reported participation in the “90 percent or greater” range while only 19 percent without auto enrollment report similarly in the “90 percent or greater” range.
401(k) Savings Get a Boost from the Boss
A growing number of employers are starting to take measures to raise employees’ savings rates. Among the 401(k) plans Bank of America Merrill Lynch administers, nearly half of those that automatically enroll employees use a default contribution rate of 4 percent or higher. About 10 percent are automatically enrolling employees at a savings rate of 6 percent or more.
Millennial 401(k) Participation Dependent on Auto-Enrollment
Higher numbers of Millennials enroll in their company-sponsored retirement plans if their company automatically enrolls them in it, according to new statistics from Wells Fargo Retirement. In companies that do not automatically enroll eligible employees, just 13.4 percent of Millennials participate in the plan.
Read the Article
Heading into Retirement on Auto-Pilot
Fran Hawthorne writes in a recent New York Times article that automatic enrollment plans have spread quickly through the 401(k) world in the last six years, and even more growth and varieties are predicted.
Companies are subtly pushing people to make rational choices. In the retirement world, it means that employees’ money is automatically invested in a savings plan, unless they specifically opt out.
"It plays into the fact that inertia is a very powerful force," said Robert A. Benish, executive director and interim president of the Plan Sponsor Council of America, a trade group for employers. With the automatic features, he said, "you can jump-start someone without pain."
401(k)s—Policymakers Offer Range of Flaw-Fighting Ideas
Kansas City Star writer Lindsay Wise tees up recent policy responses to address 401(k) shortcomings. They include alternatives such as:
David John, a senior research fellow at the Heritage Foundation and policy advisor to Retirement Made Simpler notes policymakers can take smaller steps to improve the Individual Retirement Account/401(k) system:
- Economics professor Teresa Ghilarducci’s plan to require that employers deduct 2.5 percent of their employees’ pay, a contribution that businesses could match if they chose; and
- Iowa Senator Tom Harkin’s idea of privately run pension plans, in which workers without a pension or a 401(k) would be able to make automatic contributions toward retirement through pre-tax payroll deductions.
- To discourage people from tapping their retirement savings, policymakers could make it easier for old 401(k) balances to be automatically transferred to a person’s new employer; and
- Policymakers could help people save more through automatic escalation, which would move up the proportion saved from a worker’s income by one percent a year.
Should the 401(k) Be Reformed or Replaced?
Steven Greenhouse poses some tough questions in a recent New York Times article: Should 401(k)s be fine-tuned and expanded or should they be replaced entirely? He solicits comments from many experts, including David John, a pension expert at the Heritage Foundation and RMS Policy Advisor.
- John noted that "starting something wholly new would be virtually impossible." He praised the automatic enrollment features of the Pension Protection Act of 2006, which allows companies that offer plans to automatically enroll new employees, typically at 3 percent of pay, although workers can opt out.
- He also applauded the law’s automatic escalation provisions, which enable companies to ratchet up employees’ contribution rate from 3 percent in an employee’s first few years unless workers opted out. He wants Congress to raise the automatic enrollment’s default participation rate to 6 percent.
The Future of Retirement Is Better 401(k) Plans
Writing in the San Francisco Chronicle, Paul Schott Stevens, president and CEO of the Investment Company Institute, notes that the share of retirees who receive retirement income from the private-sector retirement system (both defined contribution and traditional pensions) rose by almost half from 1975 to 2010, and the median benefit rose by almost one-third, adjusted for inflation. To improve Americans' retirement prospects, Stevens recommends:
- Encouraging employers to use automatic enrollment in 401(k)s and to encourage their workers to save a greater share of their pay.
- Giving workers realistic projections of the retirement income they can expect from their current and anticipated savings.
Employee Corner: Ways To Automate Finances
Whether you are automating your company’s retirement savings plan or not, as Rob Berger writes in the Dough Roller, your employees can benefit from a number of automatic ways to manage their finances. They include:
Read the article
- Automate Bill Pay—Most banks and credit unions offer this feature for free. Once you’ve set up online bill pay, it’s easy to maintain. There are also online services that offer free bill pay.
- Automate an Emergency Fund—Having an emergency fund is an essential part of your financial stability. You can have money transferred right out of your checking account into a savings account each pay period.
- Automate Retirement Investing—If you invest in a 401(k) through your employer, then you know it’s already automated for you because it comes directly out of your paycheck before you even get paid. You can do the same thing when investing in an IRA.
Best Practices for Plan Sponsors
A new white paper from Diversified Retirement urges plan sponsors to spend time reviewing their plan’s design before developing new communication or education materials. Best practice recommendations include:
- Implement automatic enrollment to optimize its benefit. Consider setting a default rate that is at least as high as your current opt-in rate and integrate automatic escalation to improve participants’ retirement readiness over time.
- Design employer contributions to maximize plan objectives. If increasing the average savings rate is a key goal for the plan, consider extending your match to 25 percent up to 12 percent of pay. In many plans, the rate at which the match is maximized is the most commonly chosen participant contribution rate, therefore, stretching this incentive will likely result in higher savings rates.
- Narrow the number of investment options. For many participants, more options implies more work.
- Limit plan loans. Eighty-seven percent of all retirement plans offer loans and 47 percent of plans offer multiple loans. If improving employee retirement readiness is a business goal for the plan, why not consider a change to plan design to limit—or eliminate—plan loans?
The Department of Labor has a helpful resource if you are. The brochure New Employee Savings Tips—Time Is On Your Side drives home the importance of saving early.
Download the brochure
Auto 3.0—Time for a New 401(k) Model?
Mark Iwry, senior advisor to the Secretary of the Treasury for retirement policy, acknowledges that automatic 401(k) features have gone a long way to improve retirement saving opportunities for American workers. He dubbed the widespread use of automatic enrollment of new employees and default investment options such as target-date or balanced funds or managed accounts "401(k) 2.0."
Read the Investment News article
- But why stop there, Iwry asks. Employers could move to a 3.0 model that's more robust:
- Rather than settling for the standard 3 percent default rate for the initial salary deferral of new employees who are automatically enrolled in their company 401(k) plan, start at a higher level, perhaps 5 or 6 percent.
- Instead of limiting auto enrollment to new employees, expand it to existing employees who are not participating in the retirement plan.
- Iwry suggested additional best practices including more effective employer matching contributions (including matching formulas that offer lower-wage workers a higher rate of match), shorter eligibility waiting periods, broader coverage of part-time workers and expanded acceptance of rollover contributions.
How to Tell if Your 401(k) Plan Maximizes Benefits to Employees
Not all retirement plans are created equal. As a Fox Business article notes, automatic features are some of the most valuable to employees:
Read the Fox Business Article
- Even the most generous employer match and the best investment options won't help you hit your savings goal unless you start contributing to your plan.
- PlanSponsor.com reports that 91 percent of plans offer automatic enrollment to new employees, while less than 30 percent offer it to existing workers who were not previously enrolled (automatically enrolling ALL employees is considered a best practice).
401(k) Strategies Even the Lazy Can Love
The key to boosting retirement savings is putting much of the process on autopilot, said Robert Kaplan, vice president and national training consultant for ING’s U.S. Retirement Services. At the recent ASPPA 401(k) Summit, he described the success automatic plan features have had in improving participant outcomes. Workplaces offering 401(k) plans that require opting out instead of opting in, he said, have 90 percent participation rates. Increasing employee contributions automatically over time helps overcome inertia, but sponsors need to give participants plenty of lead time so they're aware of the upcoming change to their paycheck. Similarly, automatic rebalancing helps overcome emotional reactions to market changes that lead participants to "buy high and sell low."
New Regulations Enhance Savers’ Retirement Security
Two of America’s foremost retirement policy experts write that Americans who use defined contribution retirement savings plans, such as 401(k), 403(b) plans or Individual Retirement Accounts will see their retirement security enhanced by new regulatory initiatives.
Investor Behavior--Nobel Prize-Winning
The new 401(k) fee-disclosure rules the Labor Department approved last week don’t address the bigger problem with the retirement plans, says psychologist Daniel Kahneman: They’re too much like cookie jars. Reaching into one’s nest egg can be just as irresistible, he says. Nearly a quarter of 401(k) savers allowed to take loans do so at any given time—and over a seven-year period that rate increases to 50 percent. “It’s clear that in the conflict between the present and the future, the present tends to win,” Kahneman says.
Read the Smart Money article
401(k) 101: How to Start a Plan from Scratch
The uncertain economy has many workers increasingly focused on long-term financial security. That makes better retirement benefits all the more attractive. If you don’t currently offer a retirement plan—or if you’re thinking about stepping up from SIMPLE (Savings Incentive Match Plan for Employees) or SEP (Simplified Employee-Pension) plans—it might be time to consider establishing a 401(k) retirement plan. Choose the type of 401(k) plan you want to offer: a traditional 401(k), a safe harbor 401(k) or an automatic enrollment 401(k). Each allows employees to contribute through salary deductions.
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.
Read the US News and World Report’s article.
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
Automatic Enrollment on a Roll
A growing number of employers automatically enroll new workers in their retirement saving plans, boosting participation rates and the use of other automation features. Key findings from Fidelity Investments analysis:
Read the Reuter’s article.
- 51 percent of its 401(k) participants are now in plans that auto-enroll employees automatically when they are hired, up from just 16 percent five years ago.
- Participation at companies that now have automatic plans stands at 82 percent, compared with 55 percent at companies with plans that don't auto-enroll.
- Ongoing concern: Many plans set their default initial employee contribution rates too low for workers to achieve retirement success. The study finds 62 percent of Fidelity auto-enroll plans set a 3 percent initial employee contribution rate–and 78 percent have rates at 3 percent or less.
Read the Fidelity News Release.
Healthcare Organizations Report Automatic Plan on the Rise
According to a nationwide survey by Diversified and the American Hospital Association of nearly 200 health care plan sponsors, automatic features are on the rise:
Read the News Release.
- Automatic features, which are more prevalent in 401(k) plans than in 403(b) plans, are more widespread than in the past. Overall, automatic escalation increased to 23 percent in 2011 from 14 percent in 2010—and automatic enrollment increased to 36 percent, from 29 percent over the same period.
- Automatic enrollment works to increase participation rates. Sponsors report a participation rate of 79 percent in plans with automatic enrollment compared to 62 percent without.
- Two-thirds of employees in the study participate in retirement plans: 401(k) plan participation stood at 72 percent, slightly higher than that of 403(b) plan participation (65 percent).
Equalizing Retirement: Make the Most of Auto Features
Auto-enrollment is effective in putting more minorities into their company's 401(k) plans, but employers need to be even more aggressive, by escalating contribution rates, experts say.
Read the article in Human Resource Executive Online
Survey: Nearly Half of Companies Opt for Automatic Enrollment
With an eye to increasing plan participation, almost one-half (48 percent) of larger companies have implemented automatic enrollment and an additional 36 percent are considering implementing this feature, according to Diversified's 2011 Report on Retirement Plans. The survey looked at plans with at least 1,000 employees and found adoption of automatic enrollment to be most prevalent in larger companies with 10,000 employees or more (57 percent compared to 48 percent overall). Other survey results:
Read the Plan Adviser Article
- Automatic deferral escalation is in place among one-third of plan sponsors, with another third currently considering such a feature.
- To further enhance participation rates, a growing percentage (58 percent) of plan sponsors periodically re-enroll employees who originally opted out.
What Do You Call a Glass That Is 60-85 Percent Full?
Jack VanDerhei, The Employee Benefit Research Institute’s Research Director, quickly responded to a recent Wall Street Journal headline suggesting EBRI data shows that automatic enrollment in 401(k) plans actually reduces savings for some people. "What it failed to mention," blogged VanDerhei, "is that it’s increasing savings for many more—especially the lowest-income 401(k) participants."
Read the EBRI blog post
Automatic Rollovers May Help Address Small Account Concerns
What happens when an employee leaves a company that sponsors a 401(k) plan? As with traditional plan design, the employer is responsible under Department of Labor (DOL) regulations to treat the former employees as it treats current participants. The employer must continue to communicate required plan information, ensure a valid investment election is on file and manage death benefit distributions to beneficiaries when applicable. If former employees move or otherwise fail to respond to communication, the plan sponsor must try to track them down. Failure to take these actions can result in fines, penalties and possibly lawsuits.
Solving the Retirement Crisis: Q&A with Alicia Munnell
Smart Money interviewed the veteran economist and head of the Center for Retirement Research at Boston College. Munnell weighed in on automatic enrollment: “Inertia is an enormously potent force, and automatic enrollment is a way to get inertia to work for us. The Pension Protection Act of 2006 made automatic enrollment easier, but still, only half of companies with 401(k) plans do it. And they usually only enroll new employees, often at very low contribution rates. We need to redefine the 401(k) plan. We can't mandate that employers offer one. But if they do, we can require them to automatically enroll workers. And while we're at it, we should sweep all employees into it, not just new hires.”
Read the Smart Money Q&A
Seven Signs of a Good 401(k) Plan
A good 401(k) plan with generous employer contributions can help propel you toward a secure retirement. But high fees and poor investment choices make some 401(k) plans a bad deal, even after accounting for the tax breaks. US News and World Report’s Emily Brandon reports that signs of a good plan include immediate vesting, low fees, a Roth option and automation.
Read the US News article
- Employees in plans with automatic enrollment had a participation rate of 82 percent in 2010, compared with 57 percent participation among workers in plans with voluntary enrollment.
Is Auto-Enrollment a Retirement Savings Cure-All?
Do-it-yourself retirement plan enrollment is out. Employers automatically enrolling employees in their plans is in. And that may be good news for investors, as experts credit the uptick in employers automatically enrolling employees in their 401(k) plans with better-allocated portfolios and more people contributing to their plans. But is automatic enrollment the cure-all that it seems?
Read Catey Hill’s SmartMoney.com Blog
401(k)s Grow, But Savers Are Still Worried—Average Account Balance Hits New High in Fidelity Survey
The average 401(k) account balance hit $74,900 at the end of the first quarter, a 12 percent hike from a year ago, a 58 percent jump from the first quarter of 2009, and the highest level since Fidelity Investments first started tracking the data in 1998.
The average participation rate for plans that use no services is 48 percent, compared to an average participation rate of 64 percent for plans that utilize any two services and 76 percent for plans that utilize all three.
- Looking at people who have contributed continuously for 10 years, the average balance is $191,000, and among those who are 55-years-old or older and have contributed continuously for the past decade, the average balance is $233,800.
Read the MarketWatch Story
Are Automatic Enrollment Plans a Success?
Employee Benefits consultant Jeff Marzinsky writes that the short answer is yes. Many studies have indeed indicated that adding automatic enrollment features to a plan helps to facilitate participation rates going up significantly. From that perspective it is certainly a success. However, sponsors and their employees should not be lulled into a false sense of security that automatic enrollment features will guarantee a retirement nest egg sufficient to meet all of the needs of retirement. Best practices such as aggressive default levels and automatic escalation are key.
Read more at Retirementtownhall.com
FOX 40 TV: More Companies Moving to Automatic Enrollment
More companies are not only encouraging their employees to save for retirement, but actually helping them do so, according to Greg Lesko of Lesko Financial Services. One of the more painless ways to put dollars aside for retirement is automatic 401(k) plans when companies automatically enroll their workers in a 401(k) and then match their contributions.
Watch the Video
How to Choose the Best Options for Your Company’s 401(k) Plan
Inc.’s Carolyn M. Brown writes that plan design plays a key role: Structure your company 401(k) plan in a way that it encourages the highest amount of savings. Studies show that automatic enrollment and auto-escalation are features that significantly increase 401(k) participation and savings. Automatic enrollment puts workers into retirement plans unless they opt out while auto-escalation increases contributions along with raises in pay unless employees opt out. Allowing for new hires to start contributions from the get-go instead of waiting a year for eligibility also helps in cutting back on lost time for participant savings.
Plan Sponsors Use Combination of Automatic Features
The March 2011 quarterly report by Bank of America Merrill Lynch shows automatic features gaining acceptance among the company’s plan sponsor clients, and that sponsors often combine multiple automatic features. The report found a 12 percent increase in automatic enrollment and a 23 percent increase in automatic escalation over the same period last year.
The average participation rate for plans that use no services is 48 percent, compared to an average participation rate of 64 percent for plans that utilize any two services and 76 percent for plans that utilize all three.
Read the Plan Sponsor article
Is Your 401(k) Set Up to Fail? Here’s How to Fix It
In a recent column, nationally syndicated personal finance writer Jane Bryant Quinn asks readers if their employer is blindsiding them with their 401(k). "You might think you’re on track to retirement because your company enrolled you in the plan automatically. What they didn’t say is that they set you up to fail."
Quinn cites Retirement Made Simpler’s study that shows that well over 80 percent of workers who were enrolled automatically in 401(k)s are grateful for it and started saving earlier than they otherwise would.
Read Jane Bryant Quinn’s Article
Don’t Settle for Less than the Best in Your 401(k) Plan
Experts say that optimal 401(k) plans have an effective structure, the appropriate number and type of investment options with a way to evaluate those investments, and fiduciary oversight. For instance, 401(k) plans that reflect best practices are structured to offer automatic enrollment, automatic increase, transition support and retirement support.
Read Robert Powell’s MarketWatch Article
Move Public Employees into 401(k)s? Automatic Enrollment Is the Key
With automatic enrollment, state government workers could have retirement security with a 401(k)-style retirement savings plan. They would also have complete control over their benefits, without having to depend on state legislatures for funding. The key is automatic enrollment, a technique which is used by increasing numbers of private employers.
Read RMS Policy Advisor David John’s Comments in the New York Times
Behavioral Economics and Retirement Savings
David C. John, Retirement Made Simpler’s policy advisor, comments on the relationship between behavioral finance and automatic retirement features such as automatic enrollment and automatic escalation.
Watch the Interview (WMF 20 Mb)
HELP Panel—Take One: Witnesses Back Auto Features
Witnesses appearing before the U.S. Senate Committee on Health, Education, Labor and Pensions (HELP) told lawmakers that while the retirement income sufficiency issue in the U.S. is a difficult one, there are potential “fixes” to consider.
Read the Plan Sponsor Article
Access Committee Hearing Video and Testimony
HELP Panel—Take Two: Auto Features and Investor Education Should Go Hand in Hand
Making sure automatic features are supported by investor education efforts was the overriding message Dr. Julie Agnew delivered to the HELP Committee. Dr. Agnew is an Associate Professor of Finance and Economics and Co-Director of the Center for Interdisciplinary Behavioral Finance Research (CIBFR) at the Mason School of Business at The College of William and Mary.
Read Dr. Agnew’s Testimony
Automatic 401(k) Features Helping Employees Increase Retirement Nest Eggs
Nearly 875,000 employees increased their contributions to 401(k) plans in 2010, a 21 percent increase over 2009’s level of 721,000 employees, according to a quarterly Bank of America//Merrill Lynch report. Contributing factors include:
Read the On Wall Street Story
- A seven percent increase in the use of automatic enrollment
- A 23 percent increase in the use of automatic escalation
Automatic 401(k) Enrollment Becoming More Popular
Just 51.6 percent of eligible workers in Cincinnati are enrolled in a 401(k) plan. A new tactic aims to raise that number. Increasingly, companies, including Chiquita Brands, are automatically enrolling new hires in 401(k) plans, rather than waiting for employees to sign up.
Read the Cincinnati Enquirer Story
South Dakota Auto-Enrollment Plan Moves Participation Northward
More evidence that automatic enrollment succeeds in raising participation rates comes in a new study on South Dakota's Supplemental Retirement Plan. The analysis found that among government units that adopted automatic enrollment, 91 percent of new eligible employees are participating in the SRP, compared to the one percent of new hires in units without automatic enrollment.
Read the Employee Benefit News article
Read the Study
Research in the past several years has illuminated how behavioral economics affects participants, but employers understand a lot less about how it has an impact on employers themselves. “Plan sponsors are very aware of the biases that affect individuals, but I do not think a lot of sponsors are aware of these biases” that can affect them, says Gary Mottola, Associate Director of Investor Education at the Financial Industry Regulatory Authority (FINRA), an RMS partner.
Read the Plan Sponsor Article
The Automatic IRA Helps Build Assets and Retirement Security
David C. John, Retirement Made Simpler’s policy advisor, notes in a recent commentary that the Automatic IRA is designed to benefit both new savers and small business employees who had a 401(k) at a previous job and want to continue to regularly contribute to a retirement account.
Video Report: Staving Off Retirement Shortfalls
Auto-enrollment in employer plans and automatic IRAs could dramatically improve retirement savings and participation, says David John of the Heritage Foundation and the Retirement Security Project, an RMS coalition partner.
Watch the Interview
LodgingMagazine.com—The Case for Automatic 401(k) Plans
Some companies such as Mandarin Oriental are turning to automatic 401(k) plans to help their employees save for retirement. What are these plans, and how do they work?
New Automatic IRA Legislation Garners Support from Both Sides of Ideological Aisle
Major think tanks find common ground in the Senate and House bills to implement the automatic IRA
New Legislation Helps Build Retirement Security - Brookings
The Automatic IRA: A Conservative Way to Build Retirement Security - Heritage
Senate Bill Summary
House Bill Summary
Automatic 401(k)s Aid Retirement Readiness
People are more prepared for retirement than they were seven years ago, according to a recent study by the Employee Benefits Research Institute.
Read the Article
AARP Applauds Introduction of Automatic IRA Bill
In a statement following U.S. Senator Bingaman’s introduction of the Automatic IRA Act of 2010, AARP Executive Vice President Nancy LeaMond noted: "This legislation would give approximately 42 million more workers an opportunity to build a nest egg."
Read the Release
Plan Sponsor: Study of Public Plan Finds Auto Enrollment Drastically Increases Participation
A study of South Dakota’s Supplemental Retirement Plan (SRP) has found that instituting automatic enrollment results in a staggering leap in participation rates. The study, commissioned by Retirement Made Simpler and conducted by the Center for State and Local Government Excellence, said prior to the implementation of automatic enrollment, about 20% of all eligible employees participated in the SRP. Eight months after the passage of automatic enrollment legislation, 91% of new, eligible employees whose units chose to implement automatic enrollment participated in the plan and remained in it.
Majority of Employers Offering Automatic Features to Increase and Simplify Saving for Retirement
A new survey published by the International Foundation of Employee Benefit Plans (IFEBP) found that nearly three in four employers (72 percent) use automatic features in their plan. The most popular automatic feature offered is target-retirement-date investment funds (71 percent). Just over half (51 percent) have an automatic enrollment provision.
Read the Release
Auto 401(k) Enrollment Grabs Reluctant Savers
So many things in our lives are automated these days. Auto enrollment, auto escalation, and auto rebalancing are increasingly popular.
Associated Press/New York Times
Employee Focus: 401(k) Tuneup
Kiplinger editor Laura Cohn provides some 401(k) tune-up tips including:
- Make saving automatic. Signing up for an automatic-escalation feature allows you to boost your contributions by 1% or 2% of your salary each year without even thinking about it.
- Rebalance. While you're at it, request automatic rebalancing, which is typically done quarterly. That will authorize your plan administrator to sell some of your winners and buy some underperforming funds as a way to cash in your profits and bring your investments back in line with your desired asset allocation.
Employee Focus: How to Avoid Pitfalls in Automatic Retirement Saving
On long driving trips, I love to use cruise control. I just set the speed once and stop worrying about how fast I'm going. Of course, I still need to steer, and watch out for other drivers. Automation can be good for retirement saving, too—but only up to a point. Huffington Post
The Shape of Things to Come for 401(k) Plans
Here are three more plan features that you are likely to see more of in 2010 and beyond. Employee Benefit News
Employee Focus: This Simple Switch Could Save Your Retirement
As tough as times have been for workers trying to save for retirement, there's at least one piece of good news. Increasingly, employers have taken matters into their own hands, by automatically signing up their employees to participate in company-sponsored retirement accounts. It might seem insulting that your employer would sign you up for a 401(k), instead of asking you to do it yourself. But the sad truth is that when it's up to us to take action, many of us don't—and our futures suffer for it. Motley Fool
How Automatic Enrollment Affects 401(k) Match
There has been some concern that companies with an eye on their bottom line might reduce their 401(k) match to keep benefit costs the same as they were before all employees were automatically enrolled. A new Employee Benefit Research Institute study that will be released in February should quell that worry. US News and World Report
Ten Resolutions for DC Plan Sponsors
Mercer has published a "10 for 2010" checklist of resolutions defined contribution plan sponsors should make in the New Year. On the list is take steps to improve participant savings. How? By using targeted communications, automated plan features—and persistence. Mercer
Proposals for Retirement Savings
In his State of the Union speech, the President pushed for employers to allow for automatic direct-deposit individual retirement accounts, or IRAs, for workers who don’t currently have access to existing retirement plans. These initiatives would have a positive effect on the savings rate, says Brigitte Madrian, a professor of public policy and corporate management at Harvard University’s Kennedy School of Government. They would increase the number of lower- and middle-class workers who participate in a retirement savings plan and significantly increase the subsidies that low- and moderate-income workers receive. Smart Money
Employee Tenure Shows Little Change in Past 25 Years
Data on employee tenure—the amount of time an individual has been with his or her current employer—show that career jobs never existed for most workers, and still do not. CFO.com
Annuities in 401(k) plans turn some heads
Gripped by how the financial crisis drastically reduced some workers’ 401(k) accounts, more employers are taking a fresh look at annuities as a source of retirement income, according to new research. Employee Benefit News
A Question of Balance: 401(k) Plans Are Being Beefed Up—So Are the Penalties for Failing to Manage Them Well
It is easier than ever to build a low-cost, high-performing 401(k) plan while simultaneously protecting employers from missteps that could lead to messy and potentially expensive lawsuits. CFO.com
Thrift Savings Plan preps to implement auto enrollment
The federal government’s $240 billion Thrift Savings Plan, the nation’s largest retirement plan, is seeing a boost in participation even before the plan starts automatic enrollment next year. Pensions and Investments (Free subscription required)
Proposals Ask 401(k) Plans to Provide Retirement-Income Projections
A bipartisan bill would require employers who sponsor 401(k) plans and the like to inform plan participants of the projected monthly income they could expect at retirement based on their current account balance. MarketWatch
Auto Annuities: Leading the Horse to Water
The market's recent plunge likely frightened more Americans into a willingness to consider putting at least some of their 401(k) assets in a retirement-income product at retirement. Now, Congress may give them a nudge to go ahead with it."As we bring more people into the system, we will need to address the longevity risk," says David Certner, AARP's Director of Legislative Policy in Washington. Plan Sponsor
DOL Withdraws Investment Advice Rule
The U.S. Department of Labor's Employee Benefits Security Administration (EBSA) announced the publication of a notice withdrawing the final rule on the provision of investment advice under the Employee Retirement Income Security Act's prohibited transaction provisions. DOL News Release
Auto-Features Cruise onto Global Stage
A report card on the globalization of automatic features to defined contribution plans shows that such plans are gaining international acceptance, according to a 33-country survey of DC plan sponsors by Mercer. Employee Benefit News
Employers are Driving Employee 401(k)s
Businesses are taking more control of workers' 401(k)s, retreating from the 30-year experiment with employees running their own accounts. Some plan administrators are urging employers to automatically direct as much as 8% of workers' pay into 401(k) savings and build from there. The Wall Street Journal
Q&A with Retirement Security Project’s William Gale
Retirement policy expert Gale talks about ways to improve retirement savings prospects for Americans. Targeted News Service
Commentary: Turn America into a Nation of Savers
What can be done to turn the country into a saving nation? One approach is to take advantage of recent work in the field of behavioral economics, which has shown that saving works best when it happens automatically. Studies show that many more employees will participate in a 401(k) if they are automatically enrolled and given the choice to opt out than if they must make the affirmative effort to sign up themselves. There is much promise in having savings deposits deducted from paychecks as a matter of course, as they are under 401(k) plans. Christian Science Monitor
Americans Put Retirement Plans on Autopilot
Automatic enrollment in 401(k) plans is gaining in popularity, even as the stock-market crash wiped out more than $1 trillion in retirement accounts, two studies show. Automatic enrollment could boost 401(k) participation rates from a national average of about 75% of eligible employees to as much as 95%. TheStreet.com
Automatic Enrollment Gains Ground for DC Plans
Defined contribution plans are widely adopting automatic enrollment together with other automatic features designed to boost employee participation and limit the number of decisions employees need to make, a survey by Mercer revealed. Global Pensions
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401k Plans Revive from Bear Market Wreckage
The challenge for America is that millions of workers are more like the grasshopper – without any retirement plan.
Study Shows Growth in 401(k) Plans and Participants
The good news is that the total of 401(k) plans on the market increased by more than 20,000 in 2008 and over five million participants were added, an increase of 7.6%. The uptick in participants can be attributed, in part, to more employers using automatic enrollment and other auto features with their 401(k) plans.
TSP Reforms Boost Enrollment
The TSP moved to implement automatic contributions after legislation passed in June (H.R. 1256) to modify certain plan programs. Gregory Long, TSP's executive director, said increases in participation could continue at the current rate or even accelerate into next spring, when the plan implements the legislation's automatic enrollment provision.
Policy Analysis: Improving Savings Incentives for the Poor
More dramatic increases in the rate of savings have come from changing the design of savings programs. For example, a 2001 NBER study found that automatically enrolling employees in a 401(k) retirement plan-requiring them to opt out of participation instead of opt into the plan-increases employee participation from an average of 35% to 92% percent.
Government Studying Company-Sponsored Automatic IRAs
The Obama administration's plan to bring retirement accounts to more working people, a concept known as the automatic IRA, is taking shape. Details are being hammered out, but retirement-savings shortfalls are giving the idea momentum despite lingering questions.
Defined Contribution Plans for Nonprofit Organizations
The challenge for nonprofit organizations and the CPAs who serve them is to understand how new regulations affect 403(b) plans and when a 401(k) might be a better option. Explore the new regulations and the key questions to consider.
Reaching for Savings: Automatic Enrollment in Investment Plans Can Help Millions of Americans Build Wealth
When companies have adopted this policy of "automatic enrollment," rates of participation in 401(k) programs have soared, especially among lower-income workers. By creating the equivalent of an automatic, national 401(k), we could give all Americans the chance to save and invest for the future, reducing hardship and enhancing their well-being, lowering the long-term burden on the public sector and expanding national wealth.
Auto Enrollment Update: New Federal Hires to Get 5 Percent Match
New federal hires who formerly had to wait six months to a year to get matching government contributions to their 401(k) plans will soon be eligible to get the government contribution shortly after they go on the payroll. Automatic enrollment in the Thrift Savings Plan for those new employees will begin next spring.
Fidelity: Auto Enrollment Has Biggest Impact On Younger, Lower-Paid Workers
Data of auto enrolled participants showed that 52% were between the ages 20 and 34 and the majority (56%) of participants that were enrolled automatically made less than $40,000 a year.
For Your Employees: Target Date Checklist
Nothing beats painstaking inspection. Many people are guilty of spending more time researching their purchase of a flat-screen television than their 401(k) investments.
Breaking Down the Obama IRA
Tucked into President Obama`s financial regulatory reform legislation still being debated in Congress is a proposal to get more workers saving for retirement. The plan calls for employers to set up mandatory automatic-enrollment IRAs, retirement accounts that allow for tax-deductible contributions.
New IRS Rules Offer Relief to Safe Harbor Plans
The Internal Revenue Service issued new regulations that would permit employers experiencing a substantial business hardship to suspend or reduce safe harbor non-elective contributions under a 401(k) or 403(b) plan during a plan year.
Changes on the Way for Target Date Funds?
The Department of Labor and the Securities and Exchange Commission hosted a joint, all-day hearing to determine whether target date funds require increased regulation or disclosure.
President Signs Bill Containing Thrift Savings Plan Auto-Enrollment Feature
President Obama signed the Family Smoking Prevention and Tobacco Control Act. A part of the bill impacts the federal government's Thrift Savings Plan. New federal employees will be automatically enrolled in the TSP.
Testimony before the Subcommittee on Financial Institutions and Consumer Credit Committee on Financial Services, U.S. House of Representatives
FINRA has teamed with the Retirement Security Project and AARP to establish "Retirement Made Simpler," an effort to increase participation rates and contribution levels among employees whose companies offer 401(k) plans.
Two Cheers for Automatic IRA Enrollment
Something must be done to encourage employees of small companies to save for retirement.
Young Workers Talk about "Auto-Pilot" Retirement
Survey indicates young workers find "auto-pilot" retirement plan features highly desirable.