Congress set to make 401(k) enrollment automatic
By Brian Tumulty
Gannett News Service
The Arizona Republic
Saturday, July 22, 2006
WASHINGTON - The world of 401(k) retirement savings plans
could soon become more like traditional pensions that
automatically cover workers.
Congress is nearing final agreement on legislation that
would make it more likely that workers would be
automatically enrolled in their employers' 401(k) plans.
Employer groups following the House-Senate talks predict the
final bill will provide firms with legal protection if their
automatic-enrollment program includes:
• An employer match of 50 to 60 cents for every dollar
contributed by the employee.
• An initial employee contribution of 3 percent of pay that
escalates by 1 percentage point a year until reaching 6
• A default investment that fits within guidelines to be
established by the Labor Department.
• A provision that employees would be vested within two
In addition, 401(k) participants would receive a mailed
statement of their account balance at least once every three
months, which is not now required. That is significant for
workers at small businesses.
And employees who received a company match in the form of
employer stock would have the right to sell that stock and
diversify their savings.
Yet to be decided is whether investment advice from the plan
administrator would be available. Senate negotiators and
worker advocacy groups prefer that the investment advice
come from a third party.
A major drawback with 401(k)s is that most plans require
employees to opt in.
Automatic enrollment creates an opt-out whereby a worker
must notify the employer that he does not want pay withheld
"Automatic enrollment really does boost your participation,"
said Janice Gregory of the ERISA Industry Council, an
Federal law does not require any employer to establish a
retirement plan, but those who do must meet minimum
Five out of 10 workers participated in employer-sponsored
retirement benefit programs in 2005, according to the Bureau
of Labor Statistics; six in 10 were eligible.
Traditional pension plans are handled entirely by the
employer: contributions, investments and payment of monthly
checks after retirement.
But 401(k)s shift major responsibilities to the worker.
"Workers have not been prepared to make these decisions, and
they have been making a lot of bad decisions," said John
Goodman, president of the National Center for Policy
Analysis. Goodman's think tank advocates private-sector
approaches to public-policy issues, but his group wants more
government action to encourage workers to save.
House-Senate negotiators are expected to complete an
agreement by Tuesday. The House could vote on the
legislation by the end of the week, with the Senate soon to