The July 7 Wall Street Journal has an article about the how the law meant to increase participation in company 401(k) retirement plans appears to be back firing. (401(k) Law Suppresses Savings Rate)
Previously, a new employee had to sign-up (opt in) to contribute to the 401(k) plan. The new law says an employee is in the 401(k) plan unless they “opt out.”
The problem stems from the contribution rate companies are setting. More than two-thirds of companies set only a 3% contribution rate when most plans permit 5% and even 10% contribution.
A study by Cerulli Associates said 40% of the workers would have selected a higher contribution rate to the 401(k). Inertia is a primary cause of not upping your contribution rate.
If you are a new employee and can afford more than the 3% contribution rate, go to your department that handles the 401(k) and increase your contribution to as much as you can afford. You’re time in retirement can only improve if you save more now. And for existing employees, check to see if you can contribute more after you get that next raise! Remember, contributions to your 401(k) not only help your retirement picture but reduce your taxable income!