WASHINGTON, D.C.—Today, U.S. Representative Rahm Emanuel introduced the “401(k) Automatic Enrollment Act of 2005,” legislation that makes it easier for employers to enroll new employees in company 401(k) plans. This is the third proposal Emanuel has introduced this year focused on new ways to help Americans save for retirement outside of Social Security.

“For many Americans struggling with flat wages and rising costs, paying monthly bills is challenge enough. These days, middle-class families working hard and raising their children have little time or incentive to plan or save for retirement,” said Emanuel.

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. Beyond Social Security, only half of U.S. workers participate in employer-sponsored retirement plans, and 80 percent of small business employees have no plan at all. Nearly 28 million – or 40 percent – of households do not have retirement savings accounts of any kind beyond Social Security.

“Emanuel's legislation would help expand pension coverage for millions of working families. It encourages ‘automatic’ 401(k) plans by preempting state law, reaffirming and expanding fiduciary protection for plan sponsors that give life cycle funds and managed accounts to employees who don't choose other investments, and guaranteeing employees the choice to opt out whenever they wish,” said J. Mark Iwry, Nonresident Senior Fellow, the Brookings Institution, and former Benefits Tax Counsel, US Treasury Department.

Automatic enrollment in employee-based 401(k) plans is the single most effective way to get employees to start investing in retirement accounts. Yet, as of 2003, only eight percent of all companies who offered 401(k) plans had adopted automatic enrollment as an option. And only one percent of those plans included companies with fewer than 50 employees.

“This bill has the potential to revolutionize the way Americans save for retirement and will open new doors for the millions of families who have not considered their options for retirement beyond their guaranteed Social Security benefit,” said Emanuel. “With this legislation, we have a chance to create a new generation of more financially secure families.”

This legislation will promote and facilitate wider adoption of automatic enrollment, helping more Americans begin to build retirement nest eggs through new 401(k) plan contributions by:

• Clarifying and codifying Internal Revenues Service (IRS) rulings to permit 401(k) auto enrollment. 
• Confirming that automatic enrollment is not restricted by state laws barring employers from deducting amounts from employees’ paychecks without an employee signature. 
• Giving employers protection to ease their concerns about liability for investment losses if the company’s automatic investments are invested in a prudent manner. 

“Automatic enrollment and Save More Tomorrow have been proven to be effective ways of helping Americans increase their saving rates. I applaud Representative Emanuel for taking an interest in these ideas and urge the Congress to enact legislation that facilitates the adoption of these concepts,” said Professor Richard Thaler of the University of Chicago’s Graduate School of Business, one of the Nation’s leading academics on retirement savings and auto enrollment issues. Thaler is the author of the Save More Tomorrow (SMarT) plan, designed to help employees who want to save more but for a variety of reasons have not enrolled in their company’s 401(k) plan.

Last week, Emanuel held a roundtable with employees from Chicago’s RR Donnelley to discuss the Automatic Enrollment Act of 2005, the third piece of legislation Emanuel has introduced this year to encourage Americans to save. This year, he has already introduced the Retirement Savings for Working Americans Act of 2005, which made the Saver’s Credit refundable and permanent, the Direct Deposit Savings Act of 2005, legislation that makes retirement savings easier by allowing taxpayers to deposit some or all of their Federal income tax refund directly into personal savings or Individual Retirement Accounts.