Sunday, September 6, 2009

Keep your hands on the wheel if your retirement plan goes on autopilot

President Obama made a big change in how workers save for retirement over the Labor Day weekend.

Here are some of the details. Briefly, more employers will be offering automatic enrollments in 401(k) and other retirement plans, taxpayers get new opportunities to use tax refunds for retirement savings or to buy Savings Bonds, and some workers with unused vacation or paid sick leave can throw that money into the retirement pot too.

Automatic enrollments have been around - and generally applauded - for several years, but making them nearer to universal makes it more important for savers to watch for potential problems too. One of the advantages that employers may like, for example, is that the new rules make it potentially easier to offer smaller matching contributions and to cut back on traditional pension funding that they also might be on the hook for.

Meantime, back at the payroll window, the changes also may hurt some lower income workers that are supposed to be helped, writes's Emily Brandon. It's tough to save for retirement if you need payday loans to buy groceries. You can unenroll from the plans if needed, but that just makes it tougher to save.

Also, while more of us might be saving money by being automatically enrolled, there is no guarantee any of us will be saving enough. We probably won't, Vanguard, the mutual fund company, found in a 2007 study. Many of us will need to increase our contributions to more than the automatic enrollment offers.

The 401(k) Help Center offers links to lots of specialized Web sites that may be helpful when the new rules kick in.

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