Target-date funds and automatic enrollments for 401(k)s seemed like an easy way to help boost retirement savings, but the reality hasn’t been so simple. Some critics are complaining that the spread of such services has led to higher fees and risks for workers ad lower matches from employers, Christine Dugas reports. In response, Sen. Herb Kohl, D-Wis., says he will introduce a bill to require more regulation and transparency of such funds.
I’ve never liked automatic enrollment — it just seems condescending. A better bet, in my opinion, is to offer the carrot of generous employee matches or strings-free contributions — or one of those fancy retro benefits they used to call pensions.
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research on decision making repeatedly demonstrates that people tend to go with the default option, if it exists, for a choice. Repeated examples are discussed in the book, "Nudge." If it is the best interest of the individual and the country as a whole for people to set up long term retirement savings, then the default should be automatic enrollment. Making it the default does not force people to invest, but it makes it more likely. People can always select the "opt out" if they don't want to invest in their employer offered plan.
You're right, of course, that people go with the default position. The trouble with that, in this context, is that it makes it very easy for mutual fund companies and plan administrators to overcharge people. There's already so little transparency and accountability in this arena.