401k Savings Slipping
401k savings rates are slipping according to an article in today's Wall Street Journal. The reasons?
Basically, it's due to a law passed in 2006 by the Federal government. That law allows companies to automatically enroll employees in their 401ks. The theory behind this is that people don't save enough for retirement.
So what's been happening? Companies automatically enroll employees at a 3% contribution level. Statistics show that, left to their own devices, employees used to enroll at a 5% and 10% contribution level. So perhaps more employees are now enrolled, but they're contributing less.
Lesson #1: This is a good example of the law of unintended consequences. The results of this "well-meaning" law are that employees average contributions are going down.
(BTW, nowhere in the article is there anything about how maybe people are contributing less because wages are stagnant, but household expenses are rising. Do you think that might have something to do with the lower contributions?)
Another point: The article speculates that companies are using 3% contributions as a default because it controls (keeps down) the amount they have to contribute to their "company match." (Many companies match
employee contributions.) That could be. But the article also mentions that many companies may use 3% because the government used this as the example in the legislation. So to be safe (stay on the government's good side), companies just stuck with that example.
Of course, you know that companies were involved, through their lobbyists, in the drafting of this legislation, so I suspect they figured the 3% example would be a good way to keep their match contribution under control. Just a speculation on my part, of course.
The important point here, I think, is that, as expected, whenever the government decides what's best for "us" the result leaves something to be desired, to put it mildly.
Just ask yourself: How would the federal government know what's best for me? Maybe you believe they would know, but I really think you need to come up with an answer as to just how they would know.
My view: they don't know and it would be far better all around if they just kept their noses out of things most of the time. 401k savings slipping is just the latest example of what happens when they do stick their noses into things.
Agree? Disagree?
Basically, it's due to a law passed in 2006 by the Federal government. That law allows companies to automatically enroll employees in their 401ks. The theory behind this is that people don't save enough for retirement.
So what's been happening? Companies automatically enroll employees at a 3% contribution level. Statistics show that, left to their own devices, employees used to enroll at a 5% and 10% contribution level. So perhaps more employees are now enrolled, but they're contributing less.
Lesson #1: This is a good example of the law of unintended consequences. The results of this "well-meaning" law are that employees average contributions are going down.
(BTW, nowhere in the article is there anything about how maybe people are contributing less because wages are stagnant, but household expenses are rising. Do you think that might have something to do with the lower contributions?)
Another point: The article speculates that companies are using 3% contributions as a default because it controls (keeps down) the amount they have to contribute to their "company match." (Many companies match
employee contributions.) That could be. But the article also mentions that many companies may use 3% because the government used this as the example in the legislation. So to be safe (stay on the government's good side), companies just stuck with that example.
Of course, you know that companies were involved, through their lobbyists, in the drafting of this legislation, so I suspect they figured the 3% example would be a good way to keep their match contribution under control. Just a speculation on my part, of course.
The important point here, I think, is that, as expected, whenever the government decides what's best for "us" the result leaves something to be desired, to put it mildly.
Just ask yourself: How would the federal government know what's best for me? Maybe you believe they would know, but I really think you need to come up with an answer as to just how they would know.
My view: they don't know and it would be far better all around if they just kept their noses out of things most of the time. 401k savings slipping is just the latest example of what happens when they do stick their noses into things.
Agree? Disagree?
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