Automatic enrollment programs could inadvertently reduce
defined-contribution plan participants’ potential retirement savings
because
they could have chosen a higher contribution rate on their own,
according to a
Government Accountability Office report.
“Some participants would have selected a contribution rate higher than the
default rate had they not been subject to automatic enrollment and had
they
chosen to enroll in the plan voluntarily,” the GAO report
says.
The report, conducted for Sen. Herb Kohl, D-Wisconsin, chairman of the Senate
Special Committee on Aging, also said some automatically enrolled
employees are
likely to accept default investment funds, such as money
market or stable-value
funds, with “relatively low future prospects for
return on investment.”
“Low default contribution rates and an apparent lag in the adoption of
automatic escalation policies raise questions about the adequacy of
long-term
savings rates under automatic enrollment,” the GAO report
says.
The GAO report also cites concerns that an Obama administration-backed
proposal to require employers who aren’t already offering a retirement
plan to
automatically enroll workers in an IRA could undermine existing
and the creation
of new 401(k) plans.
“To the extent that the automatic IRA approach offers significantly lower
costs—including the relative costs of fiduciary liability—employers may
decide
against adopting a 401(k) or may eliminate an existing one,” the
GAO report
says.
Filed by Doug Halonen of Pensions
& Investments, a sister publication of Workforce Management. To comment,
e-mail editors@workforce.com.
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