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Employees automatically enrolled in 401(k) plans may be saving less

07/12/11

When the Pension Protection Act was passed in 2006, the goal was to help increase employees' retirement savings. Unfortunately, 40 percent of new hires who are automatically enrolled in their company's 401(k) plans are actually saving less than those who enroll voluntarily, according to the Employee Benefit Research Institute.

The main problem is that when companies enroll an employee, they usually do so at contribution rates between 1 and 3 percent, the Wall Street Journal reports. Individuals who choose to join the program on their own typically elect to contribute 5 to 10 percent of their salary.

"Automatic enrollment is a double-edged sword," Brigitte Madrian, a professor at Harvard University who is an expert on 401(k)s, told the media outlet. "On the one hand, there's more participation. On the other hand, lots of employees are stuck at whatever default the employer selects."

The overall amount of money Americans are saving has increased by 13 percent since the PPA was passed, getting millions of people to start saving for retirement when in previous years they may have opted out of 401(k) plans and overlooked the values of annuities.  

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