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October 26, 2009 at 08:00 PM
The U.S. Government Accountability Office makes no recommendations in a report about the performance of the 401(k) plan automatic enrollment feature.
The feature appears to increase plan participation, but it may not be suitable for all plan sponsors, GAO officials conclude in a 401(k) automatic enrollment review prepared for Sen. Herbert Kohl, D-Wis., chairman of the Senate Special Committee on Aging.
Today, about 16% of U.S. workers could participate in an employer-sponsored retirement plan but are not doing so, according to Congressional Research Service figures cited by the GAO.
In an effort to increase participation in 401(k) plans and similar types of plans, Congress included provisions that encourage use of automatic enrollment features in the Pension Protection Act of 2006.
The percentage of plans using auto enrollment features seems to have increased to 16% this year, from 1% in 2004, Barbara Bovbjerg, a GAO director, writes in a letter to Kohl summarizing the GAO’s findings.
Some studies suggest that auto enrollment features can increase plan participation rates to as high as 95%, Bovbjerg notes.
One challenge is that the features might be bad for employees at restaurants and other employers with high turnover rates, Bovbjerg writes.
A representative for one high-turnover employer told the GAO that administering an auto enrollment option would create administrative headaches.
In addition, “even with contribution rates of 6%, low-wage and short-tenure staff would accumulate very small balances and likely abandon them or take a lump-sum distribution upon separation,” Bovbjerg writes.
