Savings Boost: Employees, particularly those in lower income brackets, could
really benefit from an automatic annual step-up in their 401(k) plan
contribution rates, according to a recent article by the Employee Benefit
Research Institute.
According to the article, auto-escalation could boost 401(k) savings for the
lowest-income workers by 11 percent to 28 percent and for the highest-income
workers by 5 percent to 12 percent.
The findings are particularly good news for employers in the wake of the
Pension Protection Act of 2006, which encourages companies to automatically
enroll employees into their 401(k) plans and to increase their contributions to
coincide with a raise or work anniversary.
The article uses data from EBRI’s 2007 Retirement Confidence Survey, which
was conducted several months after the enactment of the Pension Protection Act.
In that survey, EBRI posed a question of how employees would react if their
employers automatically increased the percentage of their salaries that were
going into their 401(k) plans by 1 percent each time they received a raise.
EBRI asked employees at what percentage would they discontinue the automatic
increase. Forty-four percent of respondents said they would allow the increases
until they hit 6 percent to 10 percent, while 14 percent of respondents said
they would allow the increase to exceed 15 percent.
= Member Only
