Say what you will about government incompetence, but the idea of tying things like my retirement and healthcare to my employer just sounds terrible.
Also, auto-enrolling people into 401K sounds kinda like... ya know... social security.
Also, auto-enrolling people into 401K sounds kinda like... ya know... social security.
Companies auto enroll people into 401(k) programs because of participation requirements. For "highly paid employees" (i.e. executives) to be allowed to contribute to a 401(k), there requires a minimum level of participation from the rest of the workforce at the company. The easiest way to do so is to auto enroll people on day one.
Highly Compensated Employees are not just executives. Anybody who makes more than $115,000/year qualifies, which applies to a lot of engineers. Also, anybody who controls more than 5% of the business qualifies, whether or not they are an executive, and regardless of their salary.
Even if that was the rhetoric used when creating the rule, I'd be very skeptical of assuming that was the case, rather than it being motivated by a desire to increase tax revenue, as a lot of these tax rules are designed to do. $115,000 is a really low threshold to use to define "executive" - many blue-collar workers make far more than that.
(And furthermore, the rule still does not prohibit highly-compensated employees from contributing; it just requires them to pay taxes on the excess of the permitted amount.)
Quantify "many".
$115K/year comes out to an hourly rate of $57.5 (assuming 2K hours). Even factoring in overtime (1.5x) or double time (2x), I doubt a significant percentage of people make that much at a blue collar job.
Also, wouldn't this rule lower revenue because more workers end up contributing? (Assuming that executives would adjust their plans rather than pay extra taxes.)
For instance I imagine Apple's automatic 401k enrollment is in part because without the participation of retail employees, their engineers in Cupertino would be caught in this.
The Problem Safe Harbor 401(k)s Are Designed to Solve
Before you try to understand what a safe harbor 401(k) is, you should know why someone would want one. Most 401(k) plans face an annual non-discrimination test. The IRS checks to see if a highly compensated employee or business owner is maxing out 401(k) contributions for the year, while the rest of the employees lag in their savings.
The IRS wants to see that all employees are taking advantage of the retirement plan, not just those with the high paying jobs. So it tests the plan to find out if the average contributions of highly compensated employees (those who earned at least $120,000 in 2016 or own more than a 5 percent stake in the business) do not exceed the average contributions of everyone else by more than 2 percent.
If you're a business owner and your 401(k) has low adoption rates or saving rates among rank-and-file employees, it may raise a flag for the IRS. According to Plan Sponsor Council of America (a lobbying business for the retirement planning industry), most businesses pass the test, but around 40 percent claim to have reported refunding or restricting plan contributions to do so.
That's right, refunding contributions! The IRS can actually reject a retirement plan contribution that it feels is excessive.
https://www.thebalance.com/what-is-a-safe-harbor-401-k-28942...
The argument boils down to that you're going to have a default anyway, even if it's zero. So why not make the default a value that's is at least closer to the optimum.
Except that you have control over how your 401(k) gets allocated, along with additional ways to access those funds early (with a penalty) in case of emergencies.
Furthermore, 401(k)s are explicitly not comingled, whereas the entire premise of Social Security is that the funds are comingled.
But yes, I understand your point.
It's government rules that create that reality.
Personally, I've also got some outside IRAs and mutual funds as well; better to not have all the eggs in one basket, I figure.