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Wednesday, January 5, 2011

Opt in/Opt out ?

Not long ago I was in a meeting of community college professors and a concerned professor raised her hand and asked, "What do professors do if a student sleeps during class?".

I responded that I thank the student and let them know that if they, or any of their friends, are willing to spend $300 to put their heads down on a desk and sleep for an hour and 20 minutes to let me know and we can get a classroom anytime. This, of course, got some laughs and, somewhat surprising to me, a number of professors agreed with me. Of course some were appalled.

I think I am beginning to feel pretty much the same way about the whole opt in/opt out issue as it pertains to 401k participation. For those not familiar with the issue, behavioral economists have found that the simple change of requiring people to check a box if they don't want to participate in the 401k increases participation. In other words, if you have to take action to participate in the plan, some people won't participate. Sort of like having to get up off the couch to change the channel when we can't find the remote. We all know that there are some people who will watch the same channel for hours.

OK. So opt in is great? I disagree. I think plan sponsors/human resources need to work harder to explain to employees the benefits of the plan and educate participants on responsible steps to take to have a secure retirement. Participants need to understand that they will be 65 years old some day. They need to understand compounding. They need to think about where they will get an income when they are no longer in the work force. After that, it is the responsibility of the participant to take action.

Yahoo Finance has a good article today on "How Good Is Your Company 401(k) Plan ?". It references BrightScope which rates plans and compares them to their peers. It is a useful tool in getting action on reducing fund costs, improving investment options, etc.


  1. Great response on the sleeping students, by the way. I agree with you that HR departments should explain to the employees the consequences of opt-in or opt-out, but most don't. However, it is ultimately up to the individual to make the decision. Some will choose having a few extra dollars today over having several hundred thousand dollars in a 401k for their retirement years.

  2. I'm sure you know but one of the problems (mostly unspoken) with community college is it coddles the students. Some professors chase students down the hall reminding them if they get their assignments in late they will still get credit. A few years later these students get in the business world and can't understand why their poor work ethic keeps them from being promoted. It's all boils down to a basic philosophy - sometimes helping people doesn't help people. On the job they aren't going to wake you up - they are going to fire you!

  3. Great point! A simple check box can mean the difference between a good retirement and a bad one!

    I agree, education is the key. It is appalling how ignorant people are towards retirement planning.

  4. Who is to blame DIY? HR or the educational system?
    Frankly, I don't know anymore. In my opinion, every person also has a minimum responsibility towards himself when it comes to investing for the future.