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’.
For more information: http://www.ebri.org/publications/ib/?fa=ibDisp&content_id=3948