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Inertia, in classical physics, is defined by Merriam-Webster’s Collegiate Dictionary as: “a property of matter by which it remains at rest or in uniform motion in the same straight line unless acted upon by some external force.” In 401(k) plans, inertia can be defined as many eligible employees never signing up for the plan – even when the employer makes a matching contribution.
The Pension Protection Act of 2006 addressed the legal aspect of this issue by adding provisions for automatic enrollment and the Qualified Default Investment Arrangement (QDIA). But concepts like this just don’t pop into the law. It took almost ten years of advocacy in this case.
One of those advocates was Mark Iwry. While serving in the U.S. Treasury Department, overseeing the regulation of the nation’s private pension system, Mark led the government’s initiative to define, approve, and promote automatic 401(k)s beginning nearly a decade ago.
Mark, no longer in government, told me recently that
The automatic 401(k) is a disarmingly simple concept: it enrolls employees at specified contribution levels and in a specified investment, but they can always opt-out, contribute more or less, or invest differently. This enlists inertia in the cause of saving, helping workers—especially moderate- and lower-income and minorities—save more and start earlier.
Mark is now involved with helping make automatic enrollment happen and "simpler". He is the Managing Director of the Retirement Security Project (RSP) and Nonresident Senior Fellow at the Brookings Institution. The RSP is part of a coalition called Retirement Made Simpler which includes the American Association of Retired People (AARP) and the Financial Industry Regulatory Authority (FINRA). Their common mission is to encourage savings through automatic 401(k).
And Retirement Plan Simpler does exactly that by providing research and resources including a Auto 401(k) Toolkit with sample employee communication materials.
And to make it simpler for you, here is a link to the Toolkit (PDF) on their website, and if you look to your left on this page, I’ve also added a link to their website under "Other Resources".
Picture credit: Scientist Activity Badge on Bill Smith’s Unofficial Cub Scout Roundtable