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A Legislated Shortcut

The pension protection Act may have helped defined contribution plans more than defined benefit by giving a thumbs-up to automatic enrollment--an easy, but valuable, enhancement to a 401(k) plan

By Robert Rosenberg | Updated on September 01, 2006

Despite the fact that employees have long been allowed to set aside pre-tax wages for retirement savings and are often eligible to have a portion matched by their employers, one out of every four workers who can participate in 401(k) defined contribution (DC) plans don’t. And while a percentage of those consciously choose not to because they can’t afford to lose the take-home, there is a sizable group that simply can’t get its act together to sign up.

Thanks to a small provision in the recently enacted Pension Protection Act, that inertia is less likely to jeopardize their retirement. The new law addresses legal ambiguities that discourage employers from implementing automatic enrollment for their 401(k) programs, and the expectation is that many more plan sponsors will now embrace it, eventually pushing average participation rates in plans closer to 90%. While much of the new law remains controversial, this is one of the few sections to receive almost universal support. “This act clears up a lot of uncertainty and says that the government favors automatic enrollment,” says Leslie Smith,

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