"Automatic" offers an innovative new way to think about how
Americans can save for retirement.
Over the past quarter century, America's pension system has
shifted away from defined benefit plans and toward defined
contribution savings programs such as 401(k)s and IRAs. There is
much to be done to improve the defined contribution system. Many
workers fail to participate and those who do often contribute too
little, invest the funds poorly, and are not adequately prepared to
manage funds while in retirement.
To resolve these problems, the authors propose that employees
should be automatically enrolled into a 401(k) plan when they are
hired, with the right to opt out, change the amount that they
contribute, or change investment choices if they choose. If the
employer does not sponsor a 401(k) or similar retirement plan, they
would be enrolled in a payroll deduction Automatic IRA. This vision
of a transformed defined contribution system incorporates key
positive features of defined benefit plans to improve retirement
security. Employess contributions would increase over time, their
investments would benefit from professional management and
rebalancing, and they would receive lifetime income upon
retirement. These automatic features will make the 401(k) and
similar plans a more effective tool for retirement saving, and they
can be extended to the many workers who do not currently have
access to an employer plan.
In "Automatic," the authors present proposals to implement
automatic features in all phases of the 401(k) and in IRAs for
workers with no employer plan. They also draw from the experience
of countries that have implemented automatic saving structures.
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