An Easier Way to Save

By: Source: AARP.org Date Posted: 2007-08-01 13:29:47.935009-04:00

For many Americans, saving for retirement is just as hard as quitting smoking or losing weight. But it doesn't have to be that difficult.

Enhancing 401(k) programs with automatic features can generate a double-barreled investment success, enabling employees to save more for retirement and employers to better recruit and retain those employees.

That key finding is in a new AARP-commissioned report, "Enhancing 401(k) Value and Participation: Taking the Automatic Approach," released recently by AARP and prepared by global professional services firm Towers Perrin.

"People are concerned about having enough money to retire and value working for a company that provides cutting-edge retirement vehicles that work for them," explained Jon Dauphiné, AARP director economic security strategy. "Auto 401(k)s make it easy for busy workers to sign up and invest."

In South Dakota, 58 percent of workers participate in employer retirement plans.

"More people could and should be taking advantage of this powerful retirement tool," said Sarah Jennings, State Director for AARP South Dakota.

In the coming months and years, AARP South Dakota will be reaching out to local service organizations, and businesses to increase both the number of employers offering 401(k) programs and increase the number of employees participating in such programs. AARP will also educate employers about the benefits of adding automatic features, such as automatic enrollment, and offering life cycle funds with automatic rebalancing.

"AARP has a vital interest in promoting retirement security for South Dakotans, and all Americans," Jennings concluded. "The automatic 401(k) is a simple way to increase savings, and ensure South Dakotans can prepare successfully for retirement and improve lifetime financial security."

Towers Perrin interviewed twelve leading employers on a range of issues related to maximizing 40l(k) value. Eight of these organizations offered auto 401(k) and reported:

  • Virtually all have seen their 401(k) participation rates increase measurably
  • Most have seen increases in their employees' 401(k) contribution levels
  • Most report improvements in their ability to recruit and retain needed talent

About half of the organizations interviewed said automatic plan features have improved their ability to pass the 401(k) nondiscrimination tests, which have a series of rules to ensure that a sufficient number of employees at all income levels are benefiting from 401(k) plans.

Some interviewees have seen decreased turnover, reductions in 40l(k) loan levels, and increases in average 40l(k) account balances. In fact, one employer noted that after introducing enhancements to its 40l(k) plan, including automatic enrollment, the voluntary turnover went from 18 percent to two percent.

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