Nevin's Data "Points"

Most people view automatic enrollment in a 401(k) as a good thing 1  – but apparently it has a heretofore unappreciated “dark” side. At least that was the focus of a headline in a recent Wall Street Journal article  (subscription required) that asked (and answered) the provocative question: “401(k) or ATM? Automated Retirement Savings Prove Easy to Pluck Prematurely.” That is at least how the Journal chose to position its coverage of a study based on a single firm’s experience with automatic enrollment. That study , according to the Journal , serves to “answer a question that has long concerned employers that put workers into 401(k) plans and give them the option to drop out, rather than requiring them to sign up on their own: Will auto-enrolled workers treat their 401(k)s like automated-teller machines?” Now, I’ve heard a lot of questions over the years from plan sponsors about automatic enrollment – but never that one. Regardless, the Journal says ...

I recently wrote about what’s wrong with automatic enrollment . Turns out there’s more – and it has to do with when things actually go “wrong” with automatic enrollment. See, it’s one thing to say that eligible employees should be automatically enrolled – and yet another to actually get them enrolled automatically. Even the Internal Revenue Service (IRS) goes so far as to acknowledge that two common errors found in 401(k) plans are: (1) not giving an eligible employee the opportunity to make elective contributions; and (2) failing to execute an employee’s salary deferral election. Now, as it turns out, both are “fixable” – through the Employee Plans Compliance Resolution System (EPCRS). But that’s only the start of things. See, in both of those situations you’re looking at a corrective contribution of 50% of the missed deferral (adjusted for earnings) for the affected employee. And then fully vesting the employee in those contributions – contributions that are subject to ...

I recently stumbled across another of those “DC plans are becoming like DB plans” articles — you know, the so-called “DB-ification” of 401(k)s? This is all supposed to be a good thing, of course, but is it? We are, of course, routinely told that defined benefit plans do (or did) a better job of providing adequate income in retirement than defined contribution plans — though we aren’t generally reminded that that assumes that workers have actually managed to accumulate service credits sufficient to vest in those benefits, and that those programs are properly funded. However, this interest in emulation of DB plans by DC plans is a relatively recent focus, fueled in no small part by the success of Pension Protection Act-engendered trends, primarily auto-enrollment (after all, nobody asks people to fill out a form to be covered by their DB plan) and asset allocation fund defaults (ditto on asking participants to choose the investments in the DB plan). But while it’s said that imitation...