Shifting into automatic; The benefits of automatic enrollment and escalation

Many employees fail in their retirement planning because they don't enroll in their company's tax-deferred plan or they wait too long to enroll. Others, once enrolled, don't contribute enough to build sufficient wealth. Still others select irrational investments or fail to rebalance their portfolio on a regular basis. Drawbacks to automatic enrollment include asset allocation and how employees interpret their company's default contribution rate. Studies suggest that employees view default settings as optimal for retirement (they're not) and that a majority of automatically enrolled employees never change their employer's default settings. This has raised concerns about future lawsuits against companies that automatically enroll. One solution is to invest contributions from automatically enrolled employees in life-cycle funds instead of the money market funds commonly used. Using lifecycle funds cures only half the problem associated with automatic enrollment; it doesn't fix low contribution rates. Typically, automatic enrollment programs have a default contribution rate of just 2% to 3%. This is far below the recommended 10% savings rate recommend on pre-tax dollars if a person is ever to accumulate enough wealth to retire.