So we can either dismiss this round of negativity as another ploy for SEO or be grateful it's opened a forum on a legislative side effect that hasn't been resolved.
The article, "401(k) Law Suppresses Saving for Retirement," uses data and expert testimony to infer the Pension Protection Act of 2006, which allows employers to automatically enroll workers in their 401(k) plans, contradicts its intention to bolster saving and instead inadvertently leads to low contribution rates.
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As automatic enrollment goes up, deferral rates go down. WSJ reports 40 percent of new hires at companies with automatic enrollment are putting away less money than they would if they were left to enroll voluntarily. Even some of the biggest players in the retirement space have seen contribution rates in their plans fizzle since PPA passage.
Default rates of 3 percent – to which workers usually stay attached – are far less than the 5 to 10 percent participants elect when they voluntarily enroll, according to WSJ. The consequences amount to "billions of dollars in potential retirement savings" left on the table.
And here we thought DC plans were defying the recession – or at least weathering it. Assets in 401(k)s peaked above $3 trillion in April, participation has never been higher thanks to automatic enrollment, and employers are showing interest in reinstating their match.
Did the Wall Street Journal just kill our 401(k) buzz? The Employee Benefit Research Institute seems to think so. Though the nonprofit think tank gave its research to WSJ, they're now appalled that only the most pessimistic set of assumptions made it to press.
"In the July 7 Wall Street Journal, the headline of an article assessing the Pension Protection Act of 2006 (PPA) provision that encourages automatic enrollment (AE) in 401(k) plans suggests that it is actually reducing savings for some people. What it failed to mention is that it's increasing savings for many more—especially the lowest-income 401(k) participants," writes EBRI Research Director Jack Vanderhei. His explanation of what's really going on with contribution rates was published soon after the WSJ story broke.
I'm guessing the Journal is getting more hits.
But for the rest of the naysayers, there's also a good CBS MoneyWatch blog from financial expert Nathan Hale, whose valid argument is that there's a lot wrong with 401(k)s, and while the PPA is hardly a panacea, it's been an important step for retirement security. After all, where would we be if employers didn't at least try to put everyone into a savings plan, even if the worker's only putting away 3 percent? It's better than nothing.
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