My guy Dan Clifton over at Strategas Research tells me that new pension regulations issued yesterday by the Department of Labor will significantly alter the way Americans save for retirement by providing new incentives for workers to participate in a 401(k). The regulations will also increase the amount of equity and bond exposure and gradually reduce the use of traditional defined benefit plans. Clifton sums it up:
Yesterday's regulations ended that uncertainty. Employers can now automatically enroll their employees in a 401(k) plan which will boost participation. To qualify for a legal safe harbor, employers must provide a 3 percent match to workers. Therefore not only will more people hold a 401(k), more money will be flowing into equity and bond markets. Additionally, higher returning Lifecycle funds were determined tobe the appropriate default fund away from the lower returning money market and stable valuefunds. The net result of these rules are more people saving, more pre-tax income being saved, higher returns, and increased equity and bond demand. Provisions take effect 1/1/08.
My take: All this stems from passage last year of the Pension Protection Act. I can tell you that more than one Republican activist has told me that he hopes more Americans with more dough in the stock market will help create more support for investor-friendly policies like capital-gains tax cuts and personal savings accounts. At least that's the theory.