Low-Income Workers to Benefit from PPA Provisions

Low-income workers are expected to see the greatest increase in their 401(k) accounts as a result of the automatic increases allowed by the Pension Protection Act of 2006, according a recent study by the Employee Benefit Research Institute (EBRI).

Along with opening the door for automatic enrollment, the PPA allows employers to automatically increase a worker’s 401(k) contribution to coincide with a raise or a work anniversary—though the employee can decline both enrollment and the increase.

The findings by EBRI suggest that the introduction of automatic escalation will result in a significant increase of 401(k) accumulations—especially for low-income workers—compared with estimates previously determined for automatic enrollment.

The automatic escalation scenarios executed by the Washington, D.C.-based group were found to increase 401(k) accumulations by 11% – 28% for 401(k) participants in the lowest-income group and 5% – 12% for participants in the highest-income group.

More information about the research can be found here.