What 401K Changes Are Coming In The Next Couple Of Years?

What 401k changes are coming in the next couple of years? During the next few years, more employers are likely to let employers start to participate in a 401k plan as soon as they start to work for them, rather than having to wait.

401k plans have been part of our financial lives since they were approved by an act of Congress in the early 1980s as an opportunity for working people to keep more of their hard earned money for themselves. The basic principles and the way the plan works has changed little over the last 20 years, although key features such as eligibility and ease of withdrawal and flexibility have all increased. The internet has meant that information on accounts and investments are easier to access and to understand.


Investment analyst Paul Dlouhy points out that "one of the biggest changes is going to be easier and automatic enrollment in 401k plans, making it even easier for employees to participate". Automatic enrollment sometimes called 'passive' enrollment is just what it sounds - an employee will be signed up to participate in the plan without any action on their part, the object being to make 401k plans available to even more people. A survey of 220 large companies found that around 20% were considering adding the feature of automatic enrollment by the end of 2006. Around 20% of companies also intend to add the feature of automatic rebalancing for 401k accounts.




Many companies also indicated that they would try to educate employees more about the options available to them and focus on how employees realize the value of contributing. Not understanding how the plan works is one of the biggest reasons that an employee does not contribute.

During the next few years, more employers are likely to let employers start to participate in a 401k plan as soon as they start to work for them, rather than having to wait. In today's world, workers tend to switch jobs more and there should be more movement towards generally making it easier to switch 401k plans between employers.

Since the late 1990s there has also been a rise in what is known as socially responsible investing through retirement plans, and this trend will probably continue. Another recent trend in 401k plans has been more diverse investment opportunities available to participants and this trend will probably continue. Companies have also been tending to increase the amount of their matching contributions over the last few years, partly to help keep employees. (See question 3)

As for the new Roth 401k, around 13% of companies interviewed said they were considering adding it to their investment options for employees in 2006, although almost certainly this figure will increase. (See question 11)

"Some changes to 401k plans are unknown" says Dlouhy when asked the question. "Some people in Congress are trying to do away with both traditional and Roth 401k plans. Here's a thought - why don't they put everybody on the retirement plan they passed for themselves that they are eligible for without paying into, funded by the taxpayers!"

One thing is for sure - the popularity of the 401k plan shows no sign of decreasing. In 2005 an estimated 40 million participants enjoyed the benefits of the plan and had an impressive $2 trillion in assets.

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