More businesses are now autoenrolling their employees in their 401(k) plans. Is this a good idea for those already enrolled or simply window dressing allowing their higher paid employees to contribute more?
Autoenrollment in 401(k) retirement plans was mandated in the Pension Protection Act of 2006. The PPA saw the idea as a way to help ensure that employees at least had a jump start at retirement. By enrolling new employees automatically, the theory of getting more workers involved in the plan sooner would them an opportunity to grow their future right from the first day (in some cases). At the time, it was thought to solve the under-use of these plans by a great many workers.
The theory seemed sound. But the execution of the idea has been found to be lacking. Seeking to understand the impact of this idea, several groups looked to judge the success of this plan. The trouble was, how? There were basically three approaches to the topic of whether the autoenrollment was working and if it was, was it doing what it was supposed to do.
According to a study done by the Center for Retirement Research at Boston College, past studies had always put the worker as the focus of how well a 401(k) performed. Did they enroll? Did they contribute? What sort of choices did they make when they did enroll and contribute? The employer’s role was almost secondary in the discussion.
Read more about autoenrollment in 401(k) plans here.