ICI Supports Labor Department Efforts to Encourage Automatic Enrollment in Defined Contribution Plans

Washington, DC, September 8, 2005 - The Institute strongly supports the Department of Labor's efforts to encourage automatic enrollment in 401(k) plans, citing recent ICI research that demonstrates that automatic enrollment dramatically increases participation in these types of plans and improves employees' retirement preparedness.

Background
A study conducted by the Institute and the Employee Benefits Research Institute in July 2005 examined the role of 401(k) plans in helping Americans prepare for retirement. Results of the study revealed that automatic enrollment in employer-sponsored retirement plans-which allows employers to automatically enroll their employees in the company-sponsored 401(k) plan, unless the employee chooses to opt out-encourages individuals to save for retirement and improves employees' retirement preparedness.

The study also demonstrated that the type of default investments selected by employers as part of automatic enrollment programs can have a significant impact on participants' 401(k) accumulations at retirement.

At a recent meeting with Labor Department representatives, the Institute learned of the Department's plans to develop guidance that would encourage use of automatic enrollment by sponsors of defined contribution plans.

ICI Position
The Institute supports the Labor Department's initiative, noting in a recent comment letter that many plan sponsors have not implemented automatic enrollment in their 401(k) plans, in part because of uncertainty about their treatment under ERISA. Because these automatic programs enroll employees in plans following employment, plans that adopt this feature must specify "default investment options," which will apply for all participants who agree to be automatically enrolled in a 401(k) plan but do not specify how their assets should be allocated.

The Institute recommends that the Labor Department's guidance urge plan sponsors to create default investment options that are well-diversified and structured in a way that takes into account each participants' expected date of retirement.

Related Links
Sections of this website are devoted to retirement security issues and ICI research focusing on the retirement plan market.