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401k Auto-Enrollment Reduces Savings

401(k) Auto-Enrollment Might Be Causing You to Save Less

If you join a new company, you might see three percent of your pay automatically disappear every month to your 401(k) plan. Since 2006, companies are legally allowed to automatically enroll you in a retirement plan as opposed to waiting for you to do it on your own. The aim of this was to encourage people to start saving for their retirement. However, a recent survey by the Wall Street Journal and Employee Benefit Research Institute found that 40 percent of new employees at firms with auto enrollments are putting away less cash than if they were enrolling on their own.

Without automatic enrollment, workers will be storing away five to 10 percent of their pay each month, says the WSJ. Although there are some that eventually raise their rates, "15 percent to 25 percent of workers eligible for 401(k) plans with auto-enrollment are unlikely ever to catch up to the annual contribution rates they would have chosen under plans with voluntary enrollment," according to the EBRI's Research Director Jack VanDerhe.

The lesson to learn from this is: don't let auto-enrollment do the job for you and be more proactive with saving for your retirement. Start increasing your donations if you can, and if you get an annual salary raise or a bonus, remember to put that extra money towards your retirement account.

Did most of you stick to the three percent default rate for a good while before increasing when you joined a company with an "opt-out" 401(k) plan?

Image Source: Thinkstock
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