Making Procrastination Work

March 29, 2011 - Al
Behavioral economists — yes, they exist — talk about the tendency of humans to procrastinate. And yes, they apply that to retirement plans. Individuals often put off signing up for them and, even when they do sign up, put off increasing their contributions over time.
Many private sector employers have responded with “automatic enrollment,” in which new employees — and sometimes existing ones, too — are automatically enrolled in a retirement plan (a 401(k) for example), with a certain amount deducted from their paychecks. And some employers increase each year the amount of the contributions deducted.
The public sector, presumably because of the increased availability of defined benefit plans, hasn’t adopted automatic enrollment in defined contribution plans, such as 457 deferred compensation plans, to the same degree. But according to the National Association of Government Defined Contribution Administrators, Inc. (NAGDCA), interest is increasing.
Does this sound worrisome? In 457 plans, like in 401(k) plans, you’d have the option to “opt out,” requesting that contributions from your paycheck stop. But evidence suggests only a small number of employees actually do opt out. According to the NAGDCA article:
  • In a study of large private employer plans, less than 10 percent of employees opt out.
  • In a study of public sector employers, “all agreed that employees have been very receptive to (automatic enrollment)…None have received complaints or negative reactions...”

Most individuals likely recognize that saving for their future is a good thing. One employer surveyed by NAGDCA noted that “employees are often surprised at how little impact the auto deferrals have on their take-home pay.” Sometimes procrastination works to your advantage!

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