It's been 10 years since we saw a rare convergence of the industry, regulations, and academics with the signing of the Pension Protection Act (PPA) in 2016. Among the gems included in this legislation is the encouragement of the use of auto-enrollment. This “nudge” concept, advocated in part by strong academic studies, shifts the default from opting-in to opting-out. This takes advantage of the native decision-making inertia all too often exhibited by humans — that is, not making a decision.
The fruits of this reframing have been borne out by increased participation rates. According to the U.S. Bureau of Labor Statistics, significantly more employees participate in 401(k) plans with auto-enrollment versus those that participate in 401(k) plans without auto-enrollment. This outcome matches the intention of the 2016 PPA.
Perhaps “matches” wasn't the best word to use. Theorists feared auto-enrollment would remove the need for companies to offer a matching incentive to employees. Indeed, based on the mean data, this appears to be the case. The mean maximum match of 3.5 percent for plans without auto-enrollment is nearly 10 percent higher than the mean maximum match for plans without auto-enrollment.
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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).
