Auto-enrollment could lower 401(k) matches, study suggests
Is your company making a paltry contribution to your 401(k) retirement account? If so, this may be why.
Companies that automatically place employees in 401(k) plans contribute less money to workers’ retirement accounts than companies that don’t automatically enroll employees.
That’s the upshot of a recent study.
Seven years ago, Congress passed legislation allowing companies to automatically place workers in 401(k) plans.
The goal was to increase participation among people who otherwise wouldn’t have joined their 401(k)s. It’s one of several steps that the government and private companies have taken to boost Americans’ dreary level of retirement saving.
On the surface, it appears to have worked. At companies with automatic enrollment, 77 percent of employees are in 401(k)s, according to the study. It’s 67 percent at companies without auto-enrollment.
But the analysis by the Center for Retirement Research at Boston College suggests that, in effect, the other workers might be paying for it.
Companies typically make matching contributions to each employee’s 401(k) account. The match at companies without auto-enrollment is 3.5 percent, according to the study.
Companies with auto-enrollment pay only 3.2 percent. That might not sound like much of a difference, but it’s statistically significant, according to the study.
Why the lower rate? Because companies are trying to hold down their overall 401(k) costs, the study suggests.
Companies with higher levels of 401(k) participation have to shell out more in matching contributions. So they might be responding by reducing matching contributions.
“Firms with auto-enrollment may offset higher 401(k) participation costs by trimming their per-participant contributions,” the study said.
In other words, employees who normally contribute to their 401(k)s might be subsidizing the participation of others.
“While auto-enrollment will increase saving for workers who would not have participated without it, those who would have participated on their own may end up saving less due to relatively low employer match rates,” the study concludes.
©2013 Los Angeles Times
Visit the Los Angeles Times at www.latimes.com
Distributed by MCT Information Services
- The 10 most livable small towns
- Z'Tejas closing after 13 years at The Gateway
- Closet clutter: How having fewer,...
- Dave Ramsey says: Don't leave an estate with...
- Most American high schoolers don't know how...
- Sneaky tricks restaurants use to make you...
- Balancing act: Survey says lack of balance,...
- Company plans to hire up to 1,000 new...
- Utah unemployment rate second lowest in... 20
- Most American high schoolers don't know... 9
- Balancing act: Survey says lack of... 4
- Consumers are padding their checking... 2
- Optimism on the rise for job seekers 2
- Teen drivers hike Utah car insurance 89... 2
- Before you head off on your vacation,... 2
- How do Americans use their time? 1