Companies increasingly making pension decisions for employees

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STERLING, Va. -- Shannon Scrivens had a surprise in her paycheck earlier this year: It went down.

But the mother of four was happy with the modest pay cut, because the money she missed was going into a retirement savings plan.

"I noticed that the 401(k) appeared one day in my pay stub, and I was thrilled with it," said Scrivens, 35, as she took a break from her loading-dock job at a Costco warehouse near Dulles International Airport. The savings, she said, "is our only nest egg for retirement."

Scrivens is among a growing number of U.S. workers whose employers have steered them into retirement savings plans without waiting for them to ask. The practice, known as "automatic enrollment" - or, to some workers, "forced saving" - is a tradition-breaking effort to push people into putting money away for the future.

Under a pension-reform bill the Senate approved Thursday and the House earlier approved, employers for the first time are granted legal assurance that they could unilaterally shift some of a worker's pay into a retirement savings plan, such as a 401(k) program, unless the employee specifically opts out.

"This is by far the most important thing in the pension bill," said John C. Goodman, president of the National Center for Policy Analysis. "It will lead to substantially more people being in the system."

That, in turn, also could have ramifications for the economy: At a time when consumer spending is weakening, forced saving could worsen that trend by cutting into workers' disposable income. But advocates say the long-term benefits are worth any short-term pain. They see automatic enrollment as one way to lift the nation's abysmal personal savings rate, which by the government's measure has been negative for 15 consecutive months - meaning Americans, on balance, have been spending more than they've earned.

Congress' move to bless automatic enrollment also recognizes that employer-sponsored savings plans increasingly are the only type of pension program available to many workers in an era when traditional pensions are being curbed, and Social Security is in question, experts say.

More than 70 million workers are covered by 401(k) or similar savings plans, compared with 44 million beneficiaries of conventional pension plans under which companies guarantee a set level of monthly income in retirement.

Companies may feel freer to act because of the pension-reform bill, which would give employers new latitude in running workplace savings programs.

The bill also would allow financial-services firms that manage retirement savings plans for companies to advise employees on how to choose investment options - say, a U.S. stock mutual fund or a foreign stock fund. The retirement-plan managers have been prohibited from offering advice because of fear of conflicts of interest, but advocates in Congress argued that many workers would benefit from such guidance.

With the new legislation, "You will see a truly massive redesign of the 401(k) plans," predicted David L. Wray, president of the Profit Sharing/401(k) Council of America.

Proponents of automatic enrollment say the initiative addresses the human traits of inertia and procrastination that can be enemies of saving. Once people are in a savings plan, that very same inertia may work to keep them there.

"It takes some effort to look up a phone number and call someone in the plan and say no," said John Matthews, senior vice president for human resources at retailer Costco's headquarters in Issaquah, Wash. "Most people won't."

Scrivens was covered by a Costco plan that funnels 3 percent of the pay of each new hire into the company's 401(k) plan. Nine out of 10 recent hires have stayed in the program, which began last year, the company says; in the past, most of those workers would not have sought to enroll.

Scrivens, who has worked as a waitress and pre-school teacher, conceded: "If I had to take the time to fill out the paperwork, it would not have been completed. To tell you the truth, I have all the Costco information that they first gave me in a folder, and I haven't looked through it."

Participation by low-paid workers - who are least likely to have any savings - has improved significantly with automatic enrollment, studies show.

For workers in the bottom quarter of the wage scale, savings-plan participation rates have jumped from as little as 42 percent to more than 90 percent after automatic enrollment was introduced, according to an analysis by the Employee Benefit Research Institute and the Investment Company Institute.

One issue with forced-saving programs is that the reduction of take-home pay can make it challenging for workers to keep up with their bills. But workers also give up a lot, in the long run, if they fail to participate, experts say. Many companies match some portion of what employees put into their accounts.

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