1. WHITE PAPER
Automating 401 (k)s
AUTHOR: AARP and Towers Perrin
WHAT IT IS: A survey of full-time
employees at large and mid-size compa-
nies that evaluates the benefits of, and
attitudes toward, automatic enrollment
programs in company retirement plans.
MAJOR FINDINGS: Seventy-three
percent of surveyed employees showed
a favorable or neutral impression ofopt-
out 401 (k) enrollment programs, which
automatically enroll a worker in a com-
pany's retirement plan-including tak-
ing deductions from paychecks-unless
the employee specifically chooses oth-
erwise. Notably, lower-income workers
benefit most from these programs.
HIGHLIGHTS: The landmark Pen-
sion Protection Act of 2006 heavily
favors automatic enrollment programs
for worker retirement plans and, accord-
ing to the recent AARP study Enhancing
40J(k) Value and Participation: Tak-
ing the Automatic Approach, the result
is 42% of companies now say they are
more likely to use such a programs.
While opt-out retirement plans
can boost an employee's welfare once
in retirement, these high-quality plans
can also mean improved morale within
employee ranks. There is a direct rela-
tionship berween the way employees
view their benefits and their commit-
ment to the job. Ofworkers who viewed
their benefits as "above average" or bet-
ter, according to Towers Perrin, 49%
had no plans to leave. A large number
ofcompanies appear to be aware ofthat
correlation, with exactly 50% of the
survey's respondent firms reporting that
they match employees' 401 (k) contribu-
tions at an impressive rate ofup to 6% of
a worker's salary.
Finally, the study showed in very
stark terms that automatic enrollment
programs translate into a vastly better
retirement for the average worker. At
companies that invest employee dollars
in opt-out plans, the lowest-paid work-
ers-specifically, those in the bottom
quartile ofincome earners- see enough
401 (k) savings to replace an average of
52% of their preretirement income. At
companies with opt-in retirement plans,
that same bottom quartile of workers
replaces a meager 23% of their salary
in retirement. Workers in the second-
lowest quartile at automatic enrollment
companies also benefit considerably
from the opt-out programs, replacing
54% of preretirement income, com-
pared with 33% for those at companies
not using automatic enrollment.
THE AUTHOR SAYS: "People have
been quite concerned about the ability
of401 (k)s to deliver the kind ofsecurity
that defined benefit plans delivered,"
says David Certner, legislative policy
director at AARP, which sponsored the
survey. Certner adds that recent pub-
lic policy governing 401 (k) plans has
tried to take responsibility for a worker's
retirement income "out of the hands of
the individual and push it back onto the
retirement plan." - Lulaine Compere
26 September 2007 FINANCIAL PLANNING
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