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Solving the Shortfall


Last fall, the House Ways and Means Committee approved and inserted into the administration’s Build Back Better Act language requiring certain employers to offer and utilize an automatic enrollment feature within the plans they offer to employees. Committee Chairman Richard Neal (D-MA) strongly supports this specific provision of the legislation, which would be a major boost for increasing participation within 401(k) plans. 

While this change would have sweeping positive ramifications for plan sponsors that offer 401(k) plans, it is the plan participants who would be the ultimate benefactors of the proposed legislation—as drafted, this provision would deliver life-long benefits to American workers. After all, requiring employers to provide employees access to a retirement plan or an IRA account and subsequently funding it with automatic deferrals is not a brand-new concept. Just think Social Security.

What Might Be a Stumbling Block?

What could possibly derail this effort to help more Americans prepare for retirement? Who among us feels that providing more access to retirement plan coverage is a bad idea? Astoundingly, politicians seem to be grumbling and grousing about:     

  • unknown costs associated with requiring certain employers to offer a retirement plan;
  • the negative connotation that might accompany a mandate; and
  • concerns about the automatic deferral provision, which may compete with provisions of the bipartisan SECURE Act 2.0.

Read more commentary from Steff Chalk here.

The unknown-costs argument, as it pertains to tax-qualified retirement plans, has thwarted many good ideas in Washington, DC, over the years. However, this seems an unlikely area for making such an argument—particularly when the government, in concert with all Americans, is in line to pick up the tab for any retirement funding shortfall. 

Rallying against increased retirement plan coverage appears to be a hollow argument when so many Americans are needing the financial safety that a retirement plan provides. Another way to look at coverage is to consider the direct and indirect costs associated with having an aged workforce that cannot afford to retire.

Reasons to Support the Provision

The American Retirement Association has supported this bill, estimating that the automatic retirement plan features would create 62 million new retirement savers and add $7 trillion in retirement savings over the first 10 years.

The automatic enrollment retirement plan is not the end-all, be-all panacea for the retirement savings shortfall in America. However, it is unquestionably a move in the right direction. Plan sponsors that have adopted auto-enrollment have rarely regretted or reversed that decision. Similarly, data and conversations with plan sponsors indicate that most auto-deferred participants do not choose to stop deferrals. 

Plan sponsors are fully aware of the benefits that accrue to plan participants when their plan employs an auto-enrollment feature. A conversation among plan sponsors that use auto-enrollment and those who don’t often end up with the users attempting to “convert” the non-users. It happens quite frequently, and is ever-so-predictable.

Steff Chalk is the Executive Director of The Retirement Advisor University (TRAU), The Plan Sponsor University (TPSU) and 401kTV. This column first appeared in the Winter issue of NAPA Net the Magazine.