Last October, Kohl released a report by the U.S. Government Accountability Office (GAO) examining the effect automatic enrollment has on 401(k) participation and retirement savings. GAO found that automatic enrollment policies, both for 401(k) plans and IRAs, appear to increase participation significantly. GAO raised questions about how such a proposal could be implemented to effectively help those workers who are most likely to need assistance in saving for a secure retirement. TSP plans to enact automatic enrollment this August.
A similar study of private sector data released last July by the Ariel Education Initiative and Hewitt Associates found that even when adjusted for other factors like salary, age, and job tenure, African Americans are seven percent less likely to participate in 401(k) plans than non-minority employees, and Hispanics are six percent less likely.
“Ariel has been working to close the wealth gap for over many years. We are grateful our study drew the attention of the federal government. We want to thank Senator Kohl for his ongoing leadership and look forward to working with him and OPM to develop new strategies for eliminating these disparities and strengthening retirement security for all Americans,” said Mellody Hobson, President of Ariel Investments.
Kohl has been active on the issue of strengthening 401(k) retirement savings. Along with Senate HELP Committee Chairman Tom Harkin (D-IA), Kohl introduced the Defined Contribution Fee Disclosure Act to require 401(k) plan providers to disclose all fees so that workers saving for retirement can make a fully informed decision about which plan is best for them.
In their report on the private sector, Ariel/Hewitt also found that minorities are more likely to take out 401(k) loans and hardship withdrawals. The Aging Committee has found 401(k) loans and withdrawals to have significant detrimental effects on retirement savings. In early June, Kohl will introduce the SEAL 401(k) Pensions Act to reduce 401(k) such leakage. In addition, Kohl is working to strengthen one of the most popular default options, target date funds, for all investors. He recently announced that he is crafting legislation to require target date fund managers to take on a fiduciary responsibility in order for such funds to be eligible for the designation of Qualified Default Investment Alternative (QDIA).
On June 16, Senator Kohl will hold an Aging Committee hearing on turning retirement savings into lifetime income.
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A copy of OPM’s study can be found here:
Contact: Ashley Glacel (202) 224-5364