Helping Low-income workers save for retirement — November 2010, reviewed January 2013

How can employers increase their workers retirement savings?  Auto-enrollment in 401 (k) plans was encouraged by provisions of the Pension Protection Act of 2006.  Does this work with low-income workers, too?
This legislation provides legal and regulatory incentives for employers to automatically sign up or enroll new workers in their 401 (k) retirement savings plan, as a way to boost participation and individual retirement savings.  Workers can still opt out of auto-enrollment but are required to take steps to not participate.  Plans with an auto-contribution escalation provision automatically increase workers annual rate of saving in their plan to ensure their savings increase with income and salary increases.

A recent study by the nonpartisan Employee Benefit Research Institute and the Defined Contribution Institutional Investment Association found these provisions had a tremendously positive impact on worker’s retirement savings.  It will significantly improve workers’ retirement income adequacy. 

Increasing the auto-contribution escalation cap had by far the greatest impact of any single factor for helping workers being able to retire with 80% real replacement of their work income into retirement.  It was good news for all income levels including low-income workers.

Remember these results when looking at saving for retirement.  As a worker, participate in saving for your retirement through any 401 (k) or similar type of plan and increase it when income or salary increases.  You’ll thank yourself in your ‘golden years’.

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