Require automatic enrollment in 401(k) plans

Auto-enrollment for 401(k) plans in the budget proposal

Updated: Wednesday, April 1st, 2009 | By Angie Drobnic Holan

President Barack Obama has been talking about automatic enrollment for 401(k) plans for years as a "common-sense, practical solution" to increase savings.

Let's say you've just been hired at the widget factory, and on the first day, the human resources person tells you that if you want to, you can enroll in the company's 401(k) plan to save for retirement. Economists have concluded that about 20 percent of low-wage workers will sign up for the plan under this scenario.

But let's say the widget factory changes its policy. Now, the human resources person tells you that you're automatically enrolled in the program, but if you don't want to be in it, you can fill out paperwork and opt out. Under this scenario, the percentage of workers with 401(k) plans increases to about 80 percent.

During the campaign, Obama said he wanted to require the automatic enrollment as a simple way to boost savings among the general public. His budget director Peter Orszag and his economic adviser Austan Goolsbee have also expressed support for the proposal and others like it.

The proposal made it into Obama's 2010 budget outline, and it's now in the hands of Congress. So we rate this promise In the Works.

Sources:

Office of Budget and Management, Budget Documents for Fiscal Year 2010 , Feb. 26, 2009

Brookings Institution, Launch of the Hamilton Project , April 5, 2006

The Heritage Foundation, Making savings the default option , Sept. 4, 2008