Monday, October 10, 2011

Auto-Enrollment and the Racial Retirement Savings Gap

Auto-enrollment is one idea policy makers have kicked around for how to encourage more Americans to save. The idea is that if workers are automatically put into their 401ks, instead of having to "opt-in," more will do it.

It is a simple idea, but not without controversy. One issue some take with the policy is the fact that employers usually enroll their workers at a low contribution rate - - lower, in fact, than the worker would like if they were signing themselves up.

That debate aside, there is an interesting study from Vanguard covered in SmartMoney.com today. The study notes that auto-enrollment helps cut down on the much publized savings gap between races.

Here's a tidbit, but read the entire thing:

A new study by Vanguard suggests that companies automatically enrolling their employees in 401(k) plans might help. The report found that automatic enrollment not only increases participation levels across all ethnic groups, but it increases participation most dramatically for blacks and Hispanics. Whereas before automatic enrollment, just 57% of blacks and 67% of Hispanics (compared to 73% of whites) were putting money into their 401(k) plans, after automatic enrollment was instituted a full 94% and 95%, respectively, were. Furthermore, this jump in participation ends up eliminating almost all ethnic disparities in 401(k) participation, the study concludes.