Instituting auto-enrollment and auto-contribution escalation in 401(k) plans can result in a big improvement in retirement savings, especially for low-income workers. These are the results of a study by the Employee Benefit Research Institute (EBRI) and the Defined Contribution Institutional Investment Association (DCIIA).
Having a more optimal use of automatic features in 401(k) plans increases the chances for younger lower-income workers to hit a target of 80% pre-retirement real income replacement. The 401(k)s that include the following features are more likely to help workers achieve their retirement goals:
· A higher automatic-enrollment contribution rate cap.
· A successful program to reduce automatic contribution escalation opt outs.
· A higher annual auto-contribution escalation rate.
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