Sometimes people need a little nudge to do something – even when it's in their own interest. That’s the human-behavior insight behind the rise of automatically enrolling workers in retirement-savings plans, and even automatically raising the contribution rate as their income goes up.
Some critics decry an implicit paternalism (though people are free to opt out). But the idea helped win economist Richard Thaler a Nobel Prize in 2017. Now it is also embodied in a new U.S. law.
The bipartisan Secure Act is designed to mend a national shortfall in retirement savings. By one estimate, half of U.S. households are at risk of not having enough to maintain their living standards in retirement.
The law includes a tax credit for small employers to boost auto enrollment. Other key changes in the law, which went into effect this week, include making it easier for small businesses to offer retirement plans, making plans available to many part-time workers, and encouraging employers to offer annuities alongside other investment choices in 401(k) plans. It also tweaks some rules for contributions and required distributions.
The changes may be more incremental than revolutionary. But retirement expert Alicia Munnell at Boston College says they lean in a positive direction. She tells MarketWatch that having access to retirement plans and being auto enrolled “is probably the biggest thing that could improve the retirement outlook for people.”