Fidelity’s O’Hanley: Change law to boost workers’ 401(k) savings
Boston Business Journal
By Matthew L. Brown
The U.S. government should use Americans’ “inertia” as a lever to make workers save more, according to Ronald O’Hanley, president of asset management at Fidelity Investments, the largest provider of workplace retirement plans in the United States.
Congress should amend the 2006 Pension Protection Act (PPA) to double the default rate for automatic contributions employees make to retirement savings plans to 6 percent of their pay from the current 3 percent, O’Hanley said in a speech today at the U.S. Chamber of Commerce Capital Markets Summit. [EXPAND Read more]
An opt-out provision allows employees to set a rate different from the default, but O’Hanley said automatic enrollment has allowed employers to put the “power of inertia” to work at increasing savings rates.
That’s still not enough, O’Hanley said, but it’s a start. Ideally, worker contributions would add up to 10 or 15 percent of salaries when combined with employer matches.
And while lawmakers are moving toward that goal, they should make individual retirement accounts (IRAs) available from birth, O’Hanley said, according to a copy of the speech provided by Fidelity.
Fidelity had $994 billion in retirement assets under management as of Dec. 31.
Americans are living longer overall, and some 10,000 people reach age 65 – the traditional retirement age – every day. However, too few of them are prepared financially for a retirement that could last 30 years, he said.
Already, nearly 40 percent of households don’t have retirement income sufficient to cover monthly expenses.
Hanley called for improved financial education in the workplace, and for regulators and lawmakers help streamline savings plans to make them easier for workers to understand and less expensive for employers, especially small businesses, to manage.
“If tens of millions of Americans reach retirement with insufficient savings,” O’Hanley said, “the impact on our citizens, our economy and our national security could be catastrophic.” [/EXPAND]