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Entrepreneur, Dec, 2004

In theory, your employees probably know it's essential to save for retirement. So in practice, why do so many fail to participate fully in their 401(k) retirement plans? "People tend to think they should save for retirement, but they put it off," says Shlomo Benartzi, an associate professor of accounting at UCLA's Anderson School of Management. "It's very hard for people to deal with their [take-home] pay going down."

In fact, studies show more than one-third of eligible workers fail to participate at all, and many more fail to participate fully. Yet there are ways employers can bring more workers into plans--and ease the pain of the impact on pay, says Benartzi, who notes that participation rates tend to be significantly higher at companies that automatically enroll employees and allow them to opt out of programs, rather than requiring them to opt in.

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Benartzi teamed up with Richard Thaler, a professor of economics and behavioral science at The University of Chicago Graduate School of Business, to create a program that helps employees ratchet up their contributions over time.

"Basically, the employer asks people if they would like to use their pay raises toward retirement savings, and if they say yes--which most do--a portion of each increase will automatically go toward the employee's retirement savings until the participation reaches the federal maximum," he explains. "Employees can still change their minds after that, but most don't."--J.P.

Business Services Industry

Save it for later

Entrepreneur, Dec, 2004

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