Research Report The Automatic 401(k): A Simple Way To Strengthen Retirement Saving
William G. Gale, J. Mark Iwry, Peter Orszag
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The "automatic 401(k)" is a simple concept with enormous potential. An automatic 401(k) plan would have intelligent defaults at each phase of the 401(k) savings cycle: participation, contribution levels, investment allocations, rollovers, and withdrawal options. Workers would be free to opt out of these defaults if they chose to. For example, under an automatic 401(k) workers would participate unless they actively choose not to. For workers, the automatic 401(k) helps ensure that they make appropriate financial choices even if they are not financial experts. For plan sponsors, the automatic 401(k) improves nondiscrimination results by increasing lower paid employees to participate and offers a possible way to provide fiduciary and non discrimination safe harbors. The steps involved in building an automatic 401(k) are not complicated, and the benefits could be substantial; indeed, a growing body of empirical evidence suggests that the automatic 401(k) may be the most promising approach to bolstering retirement security for millions of American families.
Research Areas Aging and retirement Taxes and budgets
Tags Pensions Individual taxes Federal budget and economy