Pension bill

Scott Tong Aug 11, 2006

TEXT OF STORY

KAI RYSSDAL: Listen we know, really we do. Talking about pensions is well less than incredibly exciting. But it’s one of those things you’ve got to pay attention to. President Bush is about to sign a pension reform bill into law. Reform is a pretty loaded word but part of the plan is to get more of us socking away more of our paychecks into our 401k’s automatically. Marketplace’s Scott Tong reports.

SCOTT TONG: Imagine your 401k on autopilot. A small but growing number of companies now make investment choices for their workers. Employees are automatically enrolled in 401k’s unless they opt out. Safelite Auto Glass started doing this 11 years ago. Brenda Downing administers the company retirement plan.

BRENDA DOWNING: We had a significant number of associates who we hoped would be with us through their retirement not saving at all.

Safelite now automatically takes 2% from each employee paycheck. Then it matches the 2% and puts the entire amount in a medium risk stock and bond mutual fund. Downing says the company did worry about appearing paternalistic, you know, eat your vegetables; we know it’s good for you. But it had to do something. Thirty-one year old Leo Haimes runs the warehouse at Safelite’s regional office in Alexandria, Virginia.

LEO HAIMES: A lot of people really don’t understand the 401k these days. They’re saying the company’s choosing and messing with my money. The thing is the company’s basically looking out for your future and for your retirement. So that’s great.

Four out of 10 Safelite workers had a 401k before automatic enrollment, now it’s eight in 10.

Lots of other companies are considering an automatic enrollment but their lawyers are nervous. Making choices for workers could invite lawsuits when investments tank. The new pension bill essentially tells those lawyers to chill out.

Olivia Mitchell is with the Wharton School of Business.

OLIVIA MITCHELL: It gives the Good Housekeeping seal of approval, if you will, to employers that want to use automatic enrollment.

Mitchell says what’s driving all of this is a sense that do it yourself 401k’s are often screaming for adult supervision. Not everyone likes to make their own choices and often they choose poorly.

Bridgette Madrian teaches public policy at Harvard. She says we’re not all financial idiots. But sometimes we act that way.

BRIDGETTE MADRIAN: Most people understand they ought to be saving for retirement, 10% of income, 15% of income. But when you look at what individuals are actually doing there’s a large disconnect.

Too often financial couch potatoes get pummeled for their inertia but not with automatic enrollment. You the worker do nothing. And the boss makes good choices for you.

MADRIAN: I’d just like to be able to let it sit there and leave it alone for while. But if you’re in that camp the sensible thing to do is to make sure you’ve got inertia working as your friend.

To that end the bill gives a green light for employers to put workers in what are called life cycle or life style funds. They automatically reduce investment risk as you get older. Now it may take a while before all this automatic pilot stuff comes to an HR meeting near you.

Still it is a good time to look for financial inertia in your life. First question? Are you in the company retirement plan?

For folks who say they can’t afford it, here’s financial advisor Chris Brown.

CHRIS BROWN: They need to change their priorities. The way they’re looking at it is they’re living their lifestyle and saving whatever’s left over rather than budgeting saving to start with.

Next question. Have you increased your savings amount lately? And finally, have you checked up on your investment mix, how much risk you’re taking?

BROWN: The sad truth is that most Americans spend more hours clipping coupons from the Sunday paper than they do planning how they’re going to spend the next 30 years of their life after they retire.

Now before long your employer may plan some of this for you. Until then get off your assets and examine them.

In Washington, I’m Scott Tong for Marketplace Money.

As a nonprofit news organization, our future depends on listeners like you who believe in the power of public service journalism.

Your investment in Marketplace helps us remain paywall-free and ensures everyone has access to trustworthy, unbiased news and information, regardless of their ability to pay.

Donate today — in any amount — to become a Marketplace Investor. Now more than ever, your commitment makes a difference.