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More momentum for 401(k)s on Autopilot

Posted by: Lauren Young on October 23, 2007

While the I’s have yet to be dotted, the Department of Labor is about to issue final 401(k) default investment regulations, as well as the broader 401(k) provisions included in the Pension Protection Act of 2006.

Target date funds, balanced funds and managed accounts have been designated as qualified defaults in a 401(k) plan. The bigger loser in this decision is the insurance industry—its stable value funds no longer pass muster. The new rules will go into effect in about 60 days. A fact sheet detailing the final regulation can be found on the DOL’s website.

“The significance of this decision can not be understated – it will prompt the most dramatic shift in employer-sponsored retirement plans in decades,” says Matt Smith, Managing Director, Russell Retirement Services. “And it will leave companies of all sizes with a lot of questions to answer, a range of options to choose from, and a big transition to make.”

Every day, it seems, I hear of more companies that are shifting to automatic enrollment, automatic defaults, and automatic increases in their retirement plans. What’s the reason for all this automation? To address the fact that one-third of eligible workers don’t even bother to participate in company-sponsored 401(k) or other defined contribution plans. Research shows automatic enrollment could reduce that figure to less than 10%.

Has your employer made any kind of shift to automation in your retirement plan in the past few years? Details, please. And what’s your take on this trend?

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Bloomberg Businessweek’s Ben Steverman focuses on the latest moves in financial markets and emerging trends in stocks, bonds, and funds, always with an eye toward giving readers a better understanding of the sometimes confusing and often chaotic world of money. Standard & Poor’s senior index analyst Howard Silverblatt will also provide his take on companies’ finances and the markets. Voted one of the “Top 100 Finance Blogs” in 2007.

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