Friday, October 24th, 2014

The Obameter

Require automatic enrollment in 401(k) plans


Automatic enrollment in 401(k) plans for workers whose employers offer retirement plans.


Updates

Promise was overtaken by events

During the 2008 presidential campaign, Barack Obama promised to enact automatic enrollment in 401(k) plans for workers whose employers offer retirement plans. It hasn't happened, though the reasons are a little complicated.

Here's the underlying idea: In order to encourage people to save for their retirement, the proposal would require that companies make enrollment in 401(k) plans the default position, with workers able to opt out if they wished. In most plans now, workers must take action themselves, opting in to participate. Economists expect requiring workers to opt out would expand the number of people with 401(k) accounts.

The proposal made it into Obama's 2010 budget blueprint, but it didn't get much farther.

David John, a retirement-security specialist at the conservative Heritage Foundation, was one of the originators of the idea, which attracted bipartisan support. He said that the main reason this promise fell by the wayside was a changing environment for businesses.

As the last recession worsened, many companies cut costs by eliminating their 401(k) matches. John said that policymakers worried that adding more regulatory requirements to 401(k) plans in the midst of a poor economy could be the final straw that would lead companies to curtail their 401(k) plans entirely -- the exact opposite of the proposal's underlying goal of expanding retirement savings.

The proposal from the 2008 campaign "has been overtaken by events,” John said. (John said his own view now is to strongly support the voluntary increased use of automatic enrollment in 401(k)s but to oppose mandatory automatic enrollment for 401(k)s.)

The administration did take one modest step towards streamlining the process for businesses to adopt automatic enrollment. The Internal Revenue Service began issuing standard approvals  for companies that wanted to institute automatic enrollment, rather than replying to each individually.

However, John said this was a fairly modest change. "The standardized language is as much a positive for Treasury as it is for employers, as it keeps them from having to do customized approval letters,” John said. "Instead, they can just use a template.”

But as for the specific promise, it hasn't been fulfilled. We rate it a Promise Broken.

Sources:

White House, "Retirement Security for American Families" (fact sheet), accessed Feb. 9, 2012

E-mail interview with David John, retirement-security specialist at the Heritage Foundation, Feb. 7, 2012

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

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