Automatic 401(k) Enrollment Could Hurt Retirement Savers

Some firms reduce their 401(k) match when enrolling more workers

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Automatic enrollment of employees in a 401(k) plan is likely to get more workers to save something for retirement. But it might not boost retirement savings overall, suggests a new Center for Retirement Research at Boston College study. An increase in 401(k) participation means employers that provide a 401(k) match will have to spend more money on employee benefits. Firms that can’t or don’t want to increase compensation may take a scalpel to the 401(k) match.

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401(k) match rates are 7 percentage points lower at firms that automatically enroll their workers in retirement accounts than among those with only voluntary participation, the analysis of 826 plans representing about 30 percent of all 401(k) participants found. “So while auto-enrollment increases the number of workers participating in the private pension plans, our findings suggest that it might also reduce the level of pension contributions,” write Urban Institute research associates Mauricio Soto and Barbara Butrica.

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Some firms with automatic enrollment are even less likely to offer a 401(k) match to employees altogether. While 93 percent of plans without automatic enrollment offer a match, that number falls to 82 percent among plans with automatic enrollment.