| April 10
April 10 Fidelity Investments President Ronald
O'Hanley on Wednesday proposed that U.S. lawmakers increase the
default savings rate to at least 6 percent in retirement plans,
double the rate laid out in landmark legislation passed in 2006.
O'Hanley also said Congress should require programs that
automatically increase savings rates in U.S. retirement plans.
While he favors an opt-out provision, he said inertia tends to
keep U.S. workers on the right savings path once they are
automatically enrolled in a 401(k) retirement plan, for example.
A key problem, as he sees it, is that Americans are not
saving enough to support themselves in retirement. He said
Fidelity's research shows nearly four in 10 retiree households
do not have sufficient income to cover their expenses.
"The proverbial four-legged stool - consisting of Social
Security, traditional pension plans, defined contribution plans
and personal savings - is wobbly at best, and by and large does
not exist for most Americans," he said.
O'Hanley, who runs Fidelity's asset management division,
made his proposals in remarks prepared for delivery at the U.S.
Chamber of Commerce Capital Markets Summit in Washington.
His speech hit on themes he has been talking about since
joining Fidelity in 2010 from BNY Mellon Corp. Fidelity,
the second-largest U.S. mutual fund company behind Vanguard
Group, manages $1.7 trillion in assets while serving as the
largest administrator of 401(k) plans.
O'Hanley said the United States needs to act now "to avert
the looming catastrophe America faces if we don't get serious
about addressing the inadequacy of our retirement savings
He said Congress should build on the 2006 Pension Protection
Act, which enabled automatic enrollment and savings increase
programs while providing default enrollment into target-dated
"PPA enabled employers to use the power of inertia to put
their employees on a better path to retirement security,"
But he said the PPA's 3 percent default savings level is too
low. It should be at least 6 percent, he said.
Employees who are automatically enrolled in company 401(k)
retirement plans, for example, tend to stay in the programs
regardless of the default contribution rate.
"Whether an employer sets an initial default contribution of
1 percent, 6 percent or anything in between, roughly 88 percent
of employees accept the default rate," O'Hanley said.
He said policymakers should require automatic-increase
programs as part of the design of retirement plans, unless
employees choose not to participate.
"Automatic annual increase programs are the single most
effective driver of employee contribution increases, accounting
for close to a third of all contribution increases last year and
nearly two-thirds of increases by workers in their early 20s,"