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The 401(k) Automatic Enrollment Act of 2005 |
BackgroundAmericans are not saving enough for retirement. In fact, the national savings rate is at its lowest level since the 1930s, declining from 9.4 percent in 1970 to just 1 percent in 2004. In response to these weak savings rates, we need to create new, simpler incentives for middle-class Americans to save. Fewer than 40 percent of U.S. workers have calculated how much they will need to retire, 30 percent have not saved anything for retirement, and only 20 percent feel very confident about having enough money to live comfortably in retirement. But there is some good news: Employers instituting programs to automatically enroll new employees in the company’s 401(k) plan have seen striking results. In fact, automatic enrollment – where employees are automatically opted in to the plan unless they act to opt out -- is the single most effective tool in achieving higher 401(k) participation rates. Automatic enrollment has been particularly successful at increasing participation among those who most need the additional savings. Under auto enrollment, participation among those earning less than $20,000 a year has jumped from 13 percent to 80 percent. Merely changing the position of the “on-off switch” – changing the “default” from non-enrollment to enrollment in the plan -- dramatically increased the rate of participation. Yet, as of 2003, automatic enrollment had been adopted only by an estimated 8 percent of 401(k) plans, including about 1 percent of plans with fewer than 50 employees and 24 percent with 5,000 or more employees. Automatic enrollment has appeal to both employers and employees: it gives employees a savings push while helping employers meet tax code non-discrimination tests. Although it has been sanctioned by the IRS since 1998, uncertainty as to design parameters has caused some employers to hesitate. New IRS guidance and this legislation should address any remaining concerns. Legislative Provisions This legislation will promote and facilitate wider adoption of automatic enrollment by:
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Press Releases and Floor Statements
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