Regular readers of Money and Such know about my company's search for a new 401k provider. Well, the search continues, and the dilemma-du-jour is whether we should adopt provisions for automatic enrollment of new employees into the program.
There appears to be a philosophical disagreement between me and one of the other members of the 401k management team. Although I am very much against protecting people from the consequences of their own choices, I do believe that there are some exceptions to this rule, and retirement planning is one of those exceptions. Left to their own devices a certain percentage of the population would completely disregard the need to save for retirement, until it is too late. Some would rather spend the money now, others are simply too lazy or procrastinate for years before enrolling in their employer's retirement plan. Whatever their reason, because they fail to save some employees will not have enough for retirement.
Employers have certain moral obligations towards their work force. Ensuring that their employees are well prepared for retirement is one such crucial responsibility (on par with providing medical coverage). Since companies have all but eliminated traditional pension plans, they have a moral obligation to ensure that their employees are saving enough for their own retirement. As such, I am very much in favor of an automatic enrollment provision in our new 401k plan.
My colleague objects. He is firmly on the side of personal choice and responsibility. From his perspective, adults have the right and responsibility to care for their own needs. He feels that the employer's burden ends when it offers employees the option to invest in a 401k plan. He concedes that adequate training and education to the employees is also a major responsibility of the company. My colleague believes that by adopting automatic enrollment, we would be infringing upon employees freedom of choice in a way that could negatively impact their financial situation. He also worries that by adopting opt-out enrollment we could be opening ourselves up to law suits by disgruntled employees.
I agree with some of my colleague's arguments, however I think that an easily available and well communicated opt-out option allows those that do not want to participate in the plan to simply walk away, while offering the procrastinators a pain-free way of saving for retirement.
It appears that we have a philosophical disagreement on our hands. I believe that in the end my point of view will be accepted, but I will keep you posted on the developments.
One more interesting question: if we do indeed adopt an opt-out provision, where should the money be invested? I am leaning towards a target fund which invests employee contributions in a mixture of stocks and bonds. The mixture would change based upon each employee's age. The alternative, money market funds, is not appealing because returns may not even keep up with inflation and so we would be doing a disservice to our team members. Of course, target funds carry a certain level of investment risk and I am conflicted about whether we are justified in assuming that level of risk on behalf of employees. I think that the answer is probably "yes", but I am not yet convinced.
For additional reading on the subject, take a look at this interesting USA Today article.
If you have any advice or suggestions, please leave a comment. Would you want an opt-out provision in your 401k plan? Do you have one?