New rules open more workers to 401k's

President Bush signs the Pension Protection Act in August, 2006.

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KAI RYSSDAL: Your retirement savings plan might have gotten a boost today. And you probably didn't even notice. Last year Congress passed, and the president signed, something called the Pension Protection Act. The law makes it easier for companies to automatically enroll their workers in retirement plans like 401k's. Today the Labor Department published its rules for how that's going to happen and what kinds of plans will be covered. And it's clear the government favors investments that take some risks. Marketplace's Sarah Gardner reports.

SARAH GARDNER: Starting next year, companies can automatically enroll their workers into a plan of the company's choosing. Under rules announced today, the Labor Department made it clear it favors three types of funds. They're diversified and involve a mix of stocks and bonds. More conservative investments, like those sold sold mainly by the insurance industry were not included. That's a win for mutual fund companies, which lobbied regulators heavily on this issue.

ED GILTENAN: We made our views known quite strongly.

Ed Giltenan is with the Investment Company Institute, the main trade group for the mutual fund industry.

GILTENAN: People are trying to accumulate assets over a long period of time and I think the Department of Labor very wisely chose investment vehicles that will permit them to do that.

In the past many companies enrolled their workers in low-yielding but safer investments for fear of being sued by employees if their retirement funds lost a lot of money. Under this law, companies that default workers into these typically higher-yielding investments will be shielded more from potential lawsuits. Mark Iwry is a principal with the Retirement Security Project.

MARK IWRY: They're a waystation to draw millions of American workers away from investing most or all of their longterm savings too cautiously -- all in money market funds for 40 years for example -- or too riskily, all or most in the stock of their own employer.

Iwry says right now up to a third of workers eligible for 401(k)'s never sign up. Supporters of automatic enrollment believe it could raise participation rates to 95 percent. The rest will choose to opt out.

I'm Sarah Gardner for Marketplace.

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Sarah Gardner is a reporter on the Marketplace sustainability desk.

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