The Pension Protection Act of 2006 made significant
improvements to the features available to qualified retirement plan sponsors.
The most notable include auto enrollment and auto escalation which helps more
employees contribute to a retirement account with increase deferral amounts
each year. The employee can opt out of the plan within 60 days with no penalty.
Studies have shown that this negative election results in
a significant amount of employees staying in the plan and saving for their own
retirement. Experts call this inertia, meaning employees prefer to not change
anything. Another overlooked feature is the qualified default investment
This allows plan sponsors to by default enroll employees
in a risk adjusted portfolio. Of course, the employee may opt out of the QDIA
and choose their fund mix. This hands off approach, will allow more employees
to successfully retire. When plan
sponsors provide low cost, globally diversified, professionally managed
portfolios and adjust the risk level as the employee ages, a successful
retirement will result.
Individual investors are unable emotionally manage their
own investments, many times making bad decisions at the most inappropriate
times. Numerous studies have proven this to be the case. Professionally managed
portfolios remove the anxiety and the emotions of saving for retirement.
These features combined, result in a more pension fund like plan leaving
plan participants more time to concentrate of their careers and personal lives.
- The New Massive Pension Protection Act of 2006 (turbotax.intuit.com)
- The Next Generation Retirement Plan. (401kplanadvisors.com)
- Morningstar Should Be Ashamed of Its 401(k) Plan (401kplanadvisors.com)