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Studies show that automatically enrolling workers in 401 (k) plans can make saving for retirement much easier. The problem? Only one in three companies actually do this.
Financial investment and insurance management company Main surveyed their pension plan members on May 1 of this year and 84% of them said they started saving earlier than they otherwise would have because their employer automatically enrolled them in a 401 (k) (k).
As the pandemic eases in the United States, many workers see saving for retirement their financial priority, and employers don’t meet them where they are. This lack of help from some employers can leave many Americans ill-prepared for retirement.
“I think the data repeatedly shows conclusively that people aren’t tackling complex issues,†says Sri Reddy, senior vice president of retirement and income solutions at Principal. “I think that’s why auto-enrollment creates such value for attendees… You make it easy.
Benefits like automatic enrollment and the offer of a business match were shown to help workers save more. Increased levels of automatic enrollment could help black and Latino workers save more in particular; these groups are currently saving less for retirement than their white counterparts.
Almost half of workers surveyed by Principal say their employer matching with the company would be the main factor in encouraging them to save more for retirement.
The average correspondence between companies, for those that offer the functionality, is around 4%. This means that a worker would save 8% of his salary, 4% of his own money and 4% of his employer’s share. It’s still below the 10-15% of your income that experts say you should put aside to have enough money for a comfortable retirement.
A bill currently under consideration in Congress, if passed, would require employers to automatically enroll their eligible workers in 401 (k) and 403 (b) companies and set their contribution rate at 3% , gradually increasing it by one year until they reach 10%. The bill, called SECURE Act 2.0, would undoubtedly affect only a small percentage of workers since nearly 70% of large employers already automatically enroll their employees in their retirement plans.
So what is preventing employers from going it alone? It may be inertia, as much as anything. According to a 2017 Small Business Owner Survey by Pew Charitable Trusts, business owners who don’t offer auto-enrollment say they’re happy with their plan’s ‘current setup’ and 4 in 10 said they didn’t think their employees would want to be automatically registered. Few business owners have identified cost as one of the barriers to automatic enrollment.
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