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Tuesday, August 23, 2005

401(k) Opt-Out Regulation Proposed by Labor Department

A proposal from the Labor Department would encourage firms to automatically enroll workers in 401(k) accounts.  If enacted, it’s not clear if this will undermine the perceived necessity for Social Security reform involving add-on accounts based upon the need to increase national saving, help to open the door for more general reform, or have little effect on the political debate:

Rule would encourage automatic 401(k) enrollment, by Kathy Chu, USA Today:  The Department of Labor expects to propose a regulation by year's end that will encourage companies to automatically enroll their workers in 401(k) plans. … Once the regulation is proposed, the public will be able to comment on it before it becomes final. The regulation could affect millions of workers in 450,000 retirement plans. … The Labor Department says the proposed regulation should give employers who automatically enroll workers in a 401(k) plan some protection from lawsuits if the investment options chosen are "reasonable." Some companies are reluctant to use automatic enrollment for fear that employees whose investments lost money would sue. … Many companies that automatically enroll employees use conservative money-market or stable-value funds as a default. ... If employers view the Labor Department's guidance favorably, it could be seen as removing the last barrier to automatic enrollment … Automatic enrollment can be extremely effective in boosting 401(k) participation, especially among young and lower-income workers … Taking advantage of 401(k) plans is becoming increasingly important as companies drop pension plans…

    Posted by on Tuesday, August 23, 2005 at 12:06 AM in Economics, Saving, Social Security | Permalink  TrackBack (1)  Comments (1)

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