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More employers mandate 401(k) enrollment
More employers are mandating enrollment in 401(k) retirement plans, a report released Tuesday said.
The percentage of employers that automatically enroll workers in 401(k) has increased dramatically to 38%, according to financial services company Charles Schwab (SCHW, Fortune 500). This is more than seven times the rate in 2005, when automatic enrollment was at 5%.
Of the employers who automatically enroll their workers in a 401(k), some 37% also require automatic savings increases. This type of 401(k) plan might start at 3% for an employee, but the employer automatically adds another percentage point the following year. This practice has more than doubled from 14% in 2006 -- when Schwab clients first implemented the strategy.
The practice of automatic enrollment is important in today's economy as it ensures employees will save for their retirement. This is a particularly difficult thing to do during a recession when money is tight. In fact, based on Fidelity Investments' report that came out last week -- there has been an increase in the number of people withdrawing from their 401(k) savings accounts despite steep penalties.