The Pension Protection Act will dramatically change how employers automatically enroll employees in 401(k) plans, a new report from Watson Wyatt Worldwide indicates.
If employers were to move workers who didn’t indicate investment choices into stable value and money market funds, they would not be relieved of fiduciary liabilities. As a result, more are expected to make actively managed or index equity funds the default choice.
“Automatic enrollment and default investment programs can be a great help in providing more Americans with higher retirement savings,” Mark Washawsky, director of retirement research at Watson Wyatt told Online Recruitment. “But they require employers to carefully consider the likely impact on contributions and administrative costs, and to assess whether any plan design changes are needed. It’s to employers’ benefit to look at all ways to help employees to prepare for retirement. Otherwise, we may soon see a generation of workers that cannot afford to retire.”
In a recent survey of 401(k) sponsors, Wyatt Watson found that one-third automatically enroll employees and 57% are considering doing so.
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