GAO: 401(k) plan changes won’t fix gaps

Increasing participation in 401(k) plans through automatic enrollment may leave some workers with too little savings for retirement, the Government Accountability Office said.
Automatic enrollment is becoming more common among employers — 16 percent used it in 2009, up from about 1 percent in 2004, with higher rates among large companies, the GAO said in a report last week. Some workers in those plans had lower contribution rates and less aggressive funds with auto-enrollment, the agency found.
“Because such policies are being increasingly adopted,” the GAO said, “many additional workers will be brought into plans who might not otherwise have participated. Nonetheless, a number of considerations could potentially limit the extent or impact of such policies.”
About 63 percent of low-income workers may have no savings at retirement to supplement Social Security, the GAO said, citing a November 2007 report. Federal and state legislators have proposed creating automatic Individual Retirement Savings accounts for as many as 78 million Americans not covered by their employers, according to the government.
Ten states, including California, Connecticut, Michigan and Virginia, are considering government-assisted programs for workers not covered by their employers, according to the GAO. Those state efforts might help small employers start plans by pooling investments and providing administrative support, the GAO said.
States may have a hard time implementing such proposals because of squeezed budgets, the agency said. The state of Washington estimated costs of $4.4 million in the first two years to administer and promote a retirement-savings program.
Employers under the proposed automatic IRA would be required to let employees make contributions through payroll deductions with an opt-out provision, the GAO said. Legislation to establish instant enrollment in IRAs was introduced two years ago by Rep. Richard Neal, a Massachusetts Democrat. •