A Penny Saved

President Bush signed a bill into law yesterday.  The bill, known as the Pension Reform Act of 2006, is meant to bolster pension plans and increase usage of 401(k) plans.

Among the changes are two that will be very important to you if you have a 401(k) plan like I do.

The first is a change that allows companies to automatically enroll employees into the company sponsored 401(k) plan.  This is both good and bad.  It’s good because many people won’t question the deduction from their check and over time will find themselves with a retirment nest egg that they don’t remember saving for.  It’s bad for the same reason.  Because people won’t question the deduction and don’t have to actively participate in the enrollment, many won’t even know that they have the 401(k) in the first place.  This could lead to a greater number of abandoned 401(k) plans than we have now.

The second change is a change that will allow employers to automatically increase the employee contributions every year.  Again, this is good and bad.  It’s good because it eliminates the tendency on the employee’s part to either not increase contributions out of neglect.  It is also bad for the same reason.  Automatically increasing the contributions will take a modicum of control away from the employee.  Many will not notice or care, but those of us who have actively planned our contributions and rates may find it a struggle to keep our plan in line.

Overall, the bill is a good one.  It should help many people save for retirement.  Of course, like any law, it has it’s downside as well.  In this case, I believe it is a case of helping out the masses instead of the few.  And that’s ok.

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