$, They’ll Never Miss It

Nobody likes to have something taken away from them, especially kids. At least at my house, when one of my kids takes a toy from another one I always have to intervene. Of course, two minutes later the toy is laying on the floor and no one is playing with it. They have quickly moved on to something else, but there was still an emotional outburst.

You also hear a version of this from employees who are not contributing to their retirement plan. They often cite “I can’t afford to” or “I have too many other priorities” as reasons. This emotional response is a big reason why some plan sponsors are apprehensive of implementing automatic enrollment. They are afraid of the reaction/feedback they will have to deal with by employees who all of a sudden see a reduction in their paycheck.

The Pension Protection Act

The passage of the Pension Protection Act (PPA) allowed for automatic enrollment within retirement plans. This specific plan design feature has received a great deal of attention lately. It is touted in various proposals (for example, the Secure Annuities for Employee (SAFE) Retirement Act of 2013) as a way to increase coverage, and paired with automatic escalation as a way to hit appropriate income replacement ratios if done over an entire career.

The Time Is Now

So just like stepping in with our kids, it might be time to step in and add automatic enrollment to more plans. And hey, if kids getting their first real jobs are automatically enrolled, we might even miss out on the screaming because they won’t feel like something has been taken from them. They may even come back and thank you one day for helping them have a more secure retirement.

 

Insurance products and plan administrative services are provided by Principal Life Insurance Company.  Securities are offered through Princor Financial Services Corporation, 1-800-547-7754, member SIPC and/or independent broker dealers.  Securities sold by a Princor® Registered Representative are offered through Princor.  Princor and Principal Life are members of the Principal Financial Group® (The Principal®), Des Moines, IA 50392.

© 2013 Principal Financial Services, Inc.

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