NU Online News Service, July 11, 3:33 p.m. – Hewitt Associates L.L.C., Lincolnshire, Ill., says employees who are automatically enrolled in their employers’ 401(k) plans may end up contributing too little and choosing investment options that are too conservative.
The benefits consulting firm worked with researchers from the University of Chicago and Harvard University to look at the actual investment behavior of 100,000 workers at three companies who were eligible to join their employers’ 401(k) plans.
The researchers compared the behavior of employees at units before employees were enrolled automatically and after automatic enrollment programs were introduced.
Employees who wanted to get out of 401(k) plans at companies with automatic enrollment programs had to take active steps to opt out.
When employers set up automatic enrollment programs, they usually set employee contribution rates at 2% or 3% and put the contributions in money market funds, stable value funds, or other low-risk, low-return investments.