This article (subscription required) reports on the US 401K super system getting a makeover. I have little doubt that the Congress has been pouring carefully over the ‘Progressive Essay (pdf) I wrote for Craig Emerson advocating the ‘backstop society’ where we try to set ‘defaults’ (what happens if you do nothing) to the most benign settings we can.
To summarise, the idea – which became more prominent in American ‘behavioural economics’ literature in the last few years – is that we arrange defaults so that savings schemes kick in – and pay is deducted from people to go into their savings accounts – unless they actively opt out. Now
Now at a time when politiicans are (as ever) in ‘something must be done’ mode, this has to be a winner. Something gets done. It may have a substantial and beneficial effect both on the economy generally and on the long term welbeing of those people it has an effect on. And it’s not coercive. If you don’t like it, you opt out of it.
The New Zelanders were the first off the mark. And now the Americans. As the WSJ report confirms. The Americans will not mandate higher savings ‘defaults’ but will be trying to faciliate them.
Most significant, it will become easier for companies to automatically enroll their employees in a plan and will also empower companies to automatically increase the amount of money deducted from employees’ paychecks.
Further, where I suggested that there be a ‘default fund’ that sought to target long term growth (ie that was not too timid and in so doing depressing long term earnings) the Americans are likewise getting out of the way of corporations doing this by default.
Meanwhile, the Labor Department, which regulates the plans, is on track to let employers automatically put their employees’ money into riskier, but higher-yielding, stock and bond funds rather than low-yielding money-market funds that have long been the default option.