A Retirement Reality Check for PPA

On its surface, PPA's safe harbor automatic enrollment provisions seem to simultaneously solve two common problems: low participation for plan sponsors and low savings rates by participants. However, a recent study by Plan Sponsor magazine revealed that plans with automatic enrollment achieved 80% participation compared to 75% for plans without automatic enrollment. This is a long way from the 90% to 95% that experts anticipated.

At the core is the reality that plans tend to apply automatic enrollment prospectively. PPA does not require employers to apply automative enrollment retroactivley so it is likely plans will continue apply the provision on a prospective basis. As a result, new employees will participate and begin saving for their futures. Existing employees, will continue to sit on the sidelines.

What is needed to changed employees from passive participants and non-participants to active retirement planners? Education! Increased financial literacy will help engage participants encouraging them to take charge of their financial futures.