Alicia Munnell firmly believes there’s a retirement crisis (see“Exclusive Interview with Alicia Munnell:Auto-Enrollment Without Auto-Escalation Reduces DeferralRates,” FiduciaryNews.com, February 17, 2016).

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She understands employees aren’t saving enough.

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She’s also frank enough to admit that one of the causes is thebehavioral finance researcher’s favorite nudge--auto-enrollment.

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Auto-enrollment has been a boon to all those seeking to increaseemployee participation in their company’s 401(k) plans. And this is true. Plansthat offer auto-escalation have witnessed a marked increase in thepercentage of employees saving for retirement.

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You’d think that’s a good thing.

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Alicia Munnell knows it’s not. It’s not just a gut instinct sortof think, either. She’s studied the numbers.

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The fact is, we’ve made 401k plans such a no-brainer thatemployees aren’t even thinking about them anymore. No. Like so manylemmings, they’re merely following the default decisions of theplan sponsor (actually, the professionals that advise the plansponsor).

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To say they “set it and forget it” gives them too much credit.Employees merely forget it. The plan sponsor sets it.

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Therein in lies the problem, according to Munnell. Employees aretold the plan works on auto-pilot and they don’t have to doanything. It’s easy. No effort. Just forget it.

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Oh, it’s not like they’re forced to save. They can always optout. But that requires effort. And behavioral researchers insistthat “effort” is the problem. And those academics are correct.Employees don’t want to exert the effort. That’s why they didn’tsave when saving required effort. That’s also why they don’t stopsaving when stopping requires effort.

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Unfortunately, there’s a dark side to this Faustian Bargain.Sure, employees don’t want to exert the effort to stop the saving.But they also don’t want to spend the energy to increase theirsavings rate.

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That’s a problem. Most auto-escalation policies put the tab at 3percent of the employee’s salary. That’s barely enough to put adent into what’s needed to meet the employee’s retirement goal.

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Munnell suggests we start this deferral rate at 6 percent, butshe realizes even this isn’t enough. She knows that you need tocouple on an auto-escalation policy, lest auto-enrollment gowasted.

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Indeed, if done correctly, the marriage of auto-enrollment toauto-escalation can effortlessly (there’s that word, or at least aderivative of it) get to the level of saving most retirementplanners suggest (i.e., between 15 percent and 20 percent).

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At that level of saving, for a sustained period, employees cangrow their defined contribution plan account to a size that canreplace the need for Social Security or any other pension.

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We know this to be true because we’ve already seen it happen todisciplined savers. These people didn’t need auto-enrollment. Theydidn’t need auto-escalation. They had the internal strength ofcommitment to do it all on their own, without the guidance of somepaternalistic hand.

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These birds, though, are too few and far between to build ahealthy public retirement policy on.

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That’s why we need auto-enrollment and auto-escalation. Thesetwo levers can exist without much interference in an employee’snatural budgeting process.

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And, as a safety governor, if employees cannot adjust spendingto account for auto-enrollment and auto-escalation, they alwayshave the option to opt out.

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Actually, now that I’m thinking about it, auto-enrollment isjust like a payroll tax. And auto-escalation is just likepoliticians periodically raising that payroll tax.

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Payroll taxes are how we currently fund Social Security (to thetune of 15 percent of an employee’s salary). Maybe a lot of peoplecomplain about payroll taxes, but, in the end, they all havelearned to live with them (for the simple reason there is no optout provision).

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Hmm, this might sound like a crazy idea, but if we wanted to“fix” an unsolvable dilemma like the looming bankruptcy of SocialSecurity, getting everyone acclimated to auto-enrollment andauto-escalation in their defined contribution plans is exactly howwe would start.

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Christopher Carosa

Chris Carosa has been writing a weekly article and monthly column for BenefitsPRO online and BenefitsPRO Magazine since 2011 and is a nationally recognized award-winning writer, researcher and speaker. He’s written seven books, including From Cradle to Retire: The Child IRA; Hey! What’s My Number? – How to Increase the Odds You Will Retire in Comfort; A Pizza The Action: Everything I Ever Learned About Business I Learned By Working in a Pizza Stand at the Erie County Fair; and the widely acclaimed 401(k) Fiduciary Solutions. Carosa is also Chief Contributing Editor of the authoritative trade journal FiduciaryNews.com and publisher of the Mendon-Honeoye Falls-Lima Sentinel, a weekly community newspaper he founded in 1989. Currently serving as President of the National Society of Newspaper Columnists and with more than 1,000 articles published in various publications, he appears regularly in the national media. A “parallel” entrepreneur, he actively runs a handful of businesses, including a small boutique investment adviser, providing hands-on experience for his writing. A trained astrophysicist, he also holds an MBA and has been designated a Certified Trust and Financial Advisor. Share your thoughts and story ideas with him through Facebook (https://www.facebook.com/christophercarosa/)and Twitter (https://twitter.com/ChrisCarosa).