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Below is a complimentary Demography Unplugged research note written by Hedgeye Demography analyst Neil Howe. Click here to learn more and subscribe.

Retirement Savings: Set It and Forget It?  - 4 1 2021 10 04 18 AM

Congress is poised to consider sweeping changes to retirement plans in the coming months. The recently introduced SECURE Act 2.0 would, among other things, require employers to auto-enroll workers and increase their contributions over time. (MarketWatch)

NH: A few years ago, we reported on a Wells Fargo poll showing that 73% of Millennials supported auto-enrollment in 401(k) plans. Now they may get their wish.

In addition to mandating auto-enrollment in 401(k), 403(b), and SIMPLE plans, the SECURE Act 2.0 (officially, the Securing a Strong Retirement Act of 2020) would also “auto-escalate” participants’ contributions.

They would start with a deferral of at least 3%, and that share would increase by one percentage point annually up until a maximum of 10%. The bill also contains several other provisions aimed at helping Americans save for retirement.

Participants could still opt out of automatic enrollment or escalation. But studies have shown that the vast majority of those who are auto-enrolled in retirement plans stay in them.

If passed, this bill would mark a major shift in how retirement savings works. In recent years, the share of employers who have auto-enrolled new employees into a retirement plan has risen, but remains only around four in 10 as of 2019. Just 19% of companies auto-escalated their contributions.

Several states, including Illinois, California, and Maryland, have introduced their own automatic savings programs for those not covered by employers, but they’re hardly universal.

These provisions may be tweaked as the bill moves through Congress. But the current version has broad bipartisan support, as the original SECURE Act (passed in December 2019) did. Improving retirement security using participants’ own money is one of the few issues that all age brackets can get behind.

With the CARES Act encouraging people to make early withdrawals from their DC plans (see “Pandemic Pushing Older Workers to Deplete their Retirement Accounts”) and with Social Security slated to go broke, working-age Americans need all the help they can get.

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