Automatic feature boosts 401k participation
All the behavioral theories about workers’ inertia appear to be true. According to a new Government Accountability Office study, participation in 401k plans is boosted significantly when employers add an automatic-enrollment feature. The GAO reviewed six other research efforts, which showed that between 81 and 95 percent of workers participate after automatic enrollment. When workers had to specifically opt in to the 401k plan, participation was between 26 and 60 percent. The increase is particularly large among young workers, the GAO found:
Three of the studies also found that automatic enrollment has a significant effect on subgroups of workers with relatively low participation rates, such as lower-income and younger workers. For example, the Fidelity Investments study found that 30 percent of workers aged 20 to 29 were participating in plans without automatic enrollment. In plans with automatic enrollment, the participation rate for workers in that age range was 77 percent, an increase of 47 percentage points.
Automatic enrollment features, though, are far from universal. Just 16 percent of all plans, and 32 percent of large-company plans, put employees in the 401k unless they specifically opt out.
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David Nicklaus has covered St. Louis business for more than 25 years. His column appears three days a week on the Post-Dispatch business page. 
Actually the Roth IRA is a much better retirement plan for younger employees. The 401-K is attractive only when there are generous matches offered by the employer . . . and many companies have put at least a temporary halt to those.
This is not really a surprise. Anytime you have to opt-out of something rather than opt-in you see higher participation rates. Dan Ariely, the author of Predictably Irrational, has done the research and has a great example where many European countries got close to 100% participation in organ donation by switching from opt-in to opt-out.
no brainer. I was laid off by a company with matching 401K. now I work for a place with none and instead of rolling it over I have to cash it out to pay off my credit cards that decided to jack my interest to 27.99% with NO REASON. nothing like starting over at 40!
@SaucyB
Why didn’t you have an emergency fund, plan for the furture and spend less while working. Why is this anyone elses problem?
I don’t recall saying this was anybody else’s problem? my husband died, my ‘emergency fund’ pays hospital bills and my sons tuition. I’m just saying I’d be more likely to start a new one if my new company offered but as it stands I spend my cash in hand on NECESSITIES. my bad, I should’ve planned for my husband to die?!?!? ya know THINGS HAPPEN - it’s NOT always about “planning”, bad judgement or big screen TV’s. I hope you never find that out.
While I have been enrolled with my full time employer I had no idea, until I was automatically enrolled, that I could participate in 401k with my part time employer. I immediately increase my percentage taking advantage of whatever they would match. Ignoring any sort of match is leaving money on the table foolishly. 401K’s have tax advantages for the employee as well. All employers should do the automatic enrollment. I do believe this is something easily overlooked by younger workers and by lower income workers.
and BTW I shouldn’t have to plan for my credit card company to jack up my rates when I haven’t missed a payment either! as it is I’d rather pay the extra taxes than the extra interest, so my taxes can then go back to Citicard D’OH!
SaucyB–Citibank jacked mine up too. They did send notice and one can OPT OUT, which I did. This means I get to keep my current rate of nine-something to pay off the balance. I can no longer use the card–like I’m going to at 29.99%!?…sorry for your loss. Many us are only a health disaster away from financial ruins. My family will be much better off if I simply die than if I lose my job or meet with a health care crisis. All need to reflect on that before passing judgement.
The fact that such a large number of people need a mandate to contribute to retirement savings shows just how stupid people in this country have become. Who else do these fools think will support them in retirement? Government no doubt.
SaucyB, truely sorry that you lost your husband, but yes, you should have planned for the possibility of him dying. My wife and children would be sitting pretty if I croaked tomorrow as they have nearly a million dollars in life insurance coming in addition to my 401k and Roth IRAs.
Side note: If a CC company jacks up your rate, can’t you transfer to a lower rated card? I get no less than 10 offers a week offering me 9% on purchases and balance transfers. My HELOC has a rate of 3.25% now that I could tap if truly needed. Options are out there and you should pursue them before cashing a 401K and starting over. If you have already cashed out, don’t despair. My parents didn’t save a nickel for retirement until their 40s and have amassed about 250 gs in the last 15 or so years with several more years of work ahead for my dad to add to it.
SaucyB, So sorry for your loss. But for the grace of God, many of us would be in your shoes. I’m all for self reliance, but losing your spouse and job would wipe most of us out financially. Hang in there!