Automatic: Changing the Way America Saves

The past 25 years have brought a dramatic shift in America's pension system away from defined benefit plans and toward individual account savings arrangements such as 401(k) plans and IRAs. As a result, workers have been forced to assume increased responsibility to prepare for their own retirement and greater risk from managing their retirement accounts. In this changing retirement landscape, the authors call for new tools and strategies to help retirees manage these risks and better prepare for their retirement. "Automatic" argues for a fresh approach to increase saving, simplify retirement planning, and help manage the risks associated with today's individual account environment. The authors call for transformation of the 401(k) by incorporating key positive features of defined benefit plans as automatic arrangements. Unless individuals take the initiative to make a different choice, they are automatically enrolled in the 401(k), their contributions increase over time, their investments benefit from professional management and rebalancing, and their payouts include regular lifetime income. These automatic or default features will make the 401(k) a more effective tool for retirement saving and can be extended to the workforce that has no access to an employer plan. Automatic saving has been gaining traction in the United States and internationally. "Automatic" considers the experience of countries that have implemented automatic saving structures and presents the authors' proposals to implement automatic features in all phases of the 401(k) and in IRAs for workers with no employer plan. The volume also examines the benefits of automatic saving for women, African-Americans, and Latinos.