NEW BOOK: Automatic: Changing the Way America Saves
WASHINGTON, DC, September 29, 2009 -- Nearly half of American workers -- an estimated 78 million -- currently have no employer-sponsored retirement savings plan. Among those workers who do have access to an employer-sponsored plan, many fail to participate. Those who do take part often contribute too little, invest the funds poorly and are not adequately prepared to manage funds while in retirement. The new Brookings Institution Press book Automatic: Changing the Way America Saves from the Retirement Security Project offers a radical new way to think about how Americans can save for retirement. It tracks the growth of the automatic revolution and the ways in which behavioral economics can harness the power of inertia to help guide individuals to make good choices that enhance their retirement security.
Over the past quarter century, America's pension system has shifted away from defined benefit pension plans and toward defined contribution savings programs such as 401ks and IRAs. Automatic shows how to improve the problems of the defined contribution system. The book's authors, William G. Gale, J. Mark Iwry, David C. John and Lina Walker, propose that employees should be automatically enrolled into a 401k plan when they are hired. Employees would retain the right to opt out, change the amount that they contribute or adjust investment options. If an employer does not sponsor a 401k or similar retirement plan, workers would be enrolled in a payroll deduction Automatic IRA. The benefits of this system of automatic retirement savings are employee contributions would increase over time, their investments would benefit from professional management and rebalancing and they would receive lifetime income upon retirement.
Automatic considers how these features will help to make the 401k and similar plans more effective tools for retirement savings and how they can be extended to the many workers who do not currently have access to an employer plan. It also looks at the experience of other countries that have implemented automatic saving structures and examines the benefits of automatic saving for women, African-Americans and Latinos.
The Authors
William G. Gale holds the Arjay and Frances Miller Chair in Federal Economic Policy at the Brookings Institution and is also director of The Retirement Security Project. J. Mark Iwry is senior adviser to the secretary and deputy assistant treasury secretary for retirement and health policy at the United States Department of the Treasury. David C. John is a principal of the Retirement Security Project and a senior research fellow at the Thomas A. Roe Institute for Economic Policy Studies at the Heritage Foundation. Lina Walker is a strategic policy adviser with AARP's Public Policy Institute. Iwry and Walker completed the book during their time at the Retirement Security Project.
The Brookings Institution is a private nonprofit organization devoted to independent research and innovative policy solutions. For more than 90 years, Brookings has analyzed current and emerging issues and produced new ideas that matter -- for the nation and the world.
The Retirement Security Project is a joint venture of Georgetown University's Public Policy Institute and the Brookings Institution that is supported by the Pew Charitable Trusts and the Rockefeller Foundation.
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