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business Friday 10 June 2022

Savings incentives: How 401(k)s get us to do the right thing

By STAN CHOE those where employees
AP Business Writer must sign up themselves.
NEW YORK (AP) — More The auto-enroll programs
workers are following ex- saw 93% of eligible workers
perts’ advice in saving for save in the 401(k) last year.
retirement, even when fi- The participation rate was
nances feel precarious. It’s just 66% in plans where
happening because 401(k) workers had to volunteer.
plans are using a simple hu- A challenge going forward
man trait to guide us: our may depend on whether
inclination to do nothing. the “Great Resignation”
More workers are put- that’s taken hold across the
ting more money into economy continues.
their 401(k) accounts, and When workers leave their
they’re more often putting jobs either to move to a
it into a reasonable mix of new one or to retire, they
investments. That’s accord- can cash out their 401(k)
ing to Vanguard’s latest balances. Experts discour-
look at the nearly 5 million age this, calling it retire-
accounts of 401(k) and ment “leakage.”
similar plans that it keeps Not only can a cash out in-
records on. vite taxes and penalties, it
Even amid heavy uncer- also means workers don’t
tainty about the economy New $1 bills with the signatures of U.S. Treasurer Jovita Carranza and Treasury Secretary Steven benefit from the magic of
last year, retirement savers Mnuchin are cut and stacked at the Bureau of Engraving and Printing in Washington, Nov. 15, compounding their savings
socked away an average 2017. Associated Press over the years.
of 7.3% of their pay, not in- Such cash outs often occur
cluding employer matches, because employers made such measures, but now avoiding too-risky or too- among lower-income work-
according to Vanguard. the moves for them. they have to take an extra conservative investment ers with smaller balances,
That’s the same level as a Over the years, employers step to get out of saving mixes because their savings said Amber Brestowski,
year earlier, when the pan- have become more likely for retirement rather than are in a target-date retire- head of advice and client
demic first struck and threw to enroll workers automati- to get in. And in the field of ment fund that takes care experience for Vanguard
everything into doubt. And cally into the 401(k) plan. study known as behavioral of such decisions — again Institutional Investor Group.
it’s up from 6.9% in 2012. Employers have also been finance, that can lead to because it’s the automatic With millions of workers quit-
Vanguard recommends starting workers off con- better outcomes. In other choice in many plans. ting their jobs every month,
workers save 12% to 15% tributing higher amounts, words, inertia wins.”I really In part because of that, the potential for such leak-
of their pay, including any again automatically. see the value of it in these the median 401(k) balance age is increasing.
employer match. And as the years roll on, unusual years, these years rose to $35,345 last year. Brestowski said Vanguard
More than four out of five plans are set to automati- that have a lot of stress That’s up from a median of is working with employ-
workers eligible to con- cally increase the percent- and uncertainty where you $33,472 a year before and ers in hopes of keeping
tribute to their 401(k) were age of those contributions. might expect some rever- from $27,843 in 2012. cashouts low. The industry
doing so last year, at 81%. Last year, a quarter of all sals of a positive trend, and To see how powerful inertia is also working on ways to
That also held steady from Vanguard 401(k) accounts in fact you you don’t see it,” can be, consider the differ- move workers’ savings from
a year earlier, and it was up saw a boost in contribu- said David Stinnett, head of ence in participation rates their old employer’s 401(k)
from 74% in 2012. tions because of an auto Vanguard’s strategic retire- at plans where employers plan to their new one
The reason for the resilien- increase. ment consulting group. automatically enroll work- to stem leakage, again
cy? In many cases it was Workers can opt out of Many workers are also ers into the 401(k) versus automatically.q

Airlines blast EU plan to expand

emissions rule for flights

By FRANK JORDANS that leave the 27-nation 83% of global air traffic,
Associated Press bloc, Norway and Iceland. said expanding the EU’s
BERLIN (AP) — An avia- Current rules only apply to emissions trading system
tion industry group repre- flights within that area. as planned would also
senting most major airlines The International Air Trans- cause a “serious distortion
criticized the European port Association warned of competition and weak-
Union’s Parliament on Thursday that such a move en the global competitive
Thursday for seeking to ex- could undermine a sepa- position of EU airlines and
pand its emissions trading rate international agree- hubs. ““This decision by
system to all flights depart- ment, known as CORSIA, the European Parliament
ing the bloc. that allows airlines to buy is disturbing because it
EU lawmakers voted credits to offset their emis- endangers international A cargo Boeing 777 of China Southern Airlines flying from
Wednesday that existing sions. Critics, however, say cooperation to tackle Amsterdam to Shanghai is silhouetted against the sun as it flies
requirements for airlines to that system isn’t effective aviation’s climate change over the village of Podolye, 70 kilometers (43 miles) east of St.
buy credits for the green- enough. impacts,” IATA’s director Petersburg, Russia, on Oct. 11, 2021.
house gas emissions that The IATA, which claims to general, Willie Walsh, said Associated Press
their flights produce should represent about 290 air- in a statement. ject the plan and commit agreement on aviation
be extended to include all lines accounting for over He urged EU nations to re- to negotiating a global emissions.q