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December 18, 2007

Lawmakers Urge Ending 401(k) Waiting Periods

Filed under: General HR Buzz6:47 am

The power of the Blogosphere. Looks like others are paying attention to the retirement savings issue and looking for ways to encourage employees to enroll in retirement savings plans. Automatic enrollment is a good start . . . but what good is automatic enrollment if the employer has a 6-month or 12-month waiting period for plan participation eligibility?

#1. if an employee changes employers 5 times in their career, and each employer has a 12 month waiting period, that’s 5 years out of 30 (16%!) that they will be inelligible for contributing to a retirement savings plan.

#2. En employee, especially early in their working career, is less likely to enroll after a 12 month period because they have become accustomed to budgeting their finances based on their paycheck prior to any 401(k) contributions being withheld. They will have a perception that they can’t afford to bring home 3% less in their paycheck (even if the company is matching their contribution). In reality they are turning down a 3% pay increase because of the company match. And the 3% employee contribution is pre-tax so it’s effect on the bottom line take home pay is hardly noticable.

With all that said . . . I was happy to read the article below that was posted this week on Workforce.com titled “Lawmakers Urge Ending 401(k) Waiting Periods”  (http://www.workforce.com/section/00/article/25/26/36.html).

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