Pension Protection: How it Works
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Nancy Nall Reporting
If you start noticing a little less in your paycheck, it may not be your imagination. The Pension Protection Act 2006 law allows companies to “auto-enroll” employees in retirement savings plans. In the past, employees have had to take the affirmative action to save; the new law turns the tables, and you have to opt out of saving.
“Auto enroll is taking off like gangbusters,” Patricia Pou, a human-resources consultant told the Wall Street Journal recently. Of course, everyone should be saving for their own retirement, but some people need the extra push; expected negative reaction to auto-enrollment has yet to arise, Pou said.
Here’s how it works if you do nothing, and your company practices auto-enrollment: You’ll find a percentage of your paycheck — usually around 3 percent — automatically withheld, and invested in whatever funds are available to choose from. If you don’t want to do even that much, the money goes automatically to a “lifecycle” or target-date fund, in which the mix automatically changes over time, achieving a measure of the diversity financial planners advise.
The Pension Protection Act shields employers from liability over the auto-enrollment; some states have laws restricting withholding without express employee consent, but the PPA allows this exemption.
As companies shut down, restrict or otherwise cut back on traditional “defined-benefit” pensions, it’s increasingly important that workers save as much as they can, to afford a comfortable retirement. Auto enrollment makes it easier. More information about the Pension Protection Act is available here.
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