Is your 401(k) is on autopilot? If so, it may be time to take a look at it.
A
growing number of employers are adding automatic features to workplace
retirement-savings plans, which usually add new employees into the plans and
set workers’ contributions at 3 percent of pay.
Eleanor Laise, associate editor of Kiplinger’s Retirement Report, said automatic 401(k) saving features aren’t a fail-safe way to retirement success.
Laise offers these suggestions:
Budging from the 3 percent default rate – Workers can always opt out of the auto-savings features, but they usually don’t. On the plus side, the automation leads many who would otherwise save nothing to steadily sock away a slice of their paycheck. But the 3 percent default doesn’t come close to the savings rate needed for a secure retirement: roughly 12 percent to 15 percent, according to financial planners.
The benefits of smarter automatic features – A jump to a 6 percent default contribution produces significant improvements in retirement success rates for workers across income levels. With the higher default contribution, nearly three out of four workers in the lowest quarter of income levels would be on the path to a secure retirement, compared with just 62 percent under current default contribution rates.
Why employers are hesitant to make the change – No legal barrier exists to making the change, and the most commonly cited employer objections aren’t insurmountable. Some argue that employees can’t afford higher savings rates or that the cost of the employer matching the contribution is an issue.
A Vanguard study found that workers earning less than $300,000 contribute 50 percent more, on average, when left to their own devices in voluntary 401(k) plans. And, employers could restructure the current match program so that the higher default rate would cost them little or nothing and, at the same time, give workers an incentive to save more.
For details, visit http://www.kiplinger.com/article/retirement/T001-C022-S001-automatic-401k-saving-features-no-fail-safe-to-ret.html.

