Auto-enrollment in 401(k) retirement plans was mandated in the Pension Protection Act of 2006. The PPA saw the idea as a way to help ensure that employees at least had a jump start at retirement. By enrolling new employees automatically, the theory of getting more workers involved in the plan sooner would them an opportunity to grow their future right from the first day (in some cases). At the time, it was thought to solve the under-use of these plans by a great many workers.

The theory seemed sound. But the execution of the idea has been found to be lacking. Seeking to understand the impact of this idea, several groups looked to judge the success of this plan. The trouble was, how? There were basically three approaches to the topic of whether the autoenrollment was working and if it was, was it doing what it was supposed to do.

According to a study done by the Center for Retirement Research at Boston College, past studies had always put the worker as the focus of how well a 401(k) performed. Did they enroll? Did they contribute? What sort of choices did they make when they did enroll and contribute? The employer’s role was almost secondary in the discussion.

Granted, employers have come under pressure from investment groups to improve their plan’s offerings, giving better choices as opposed to more, keeping fees manageable and doing what they could to educate their employees about the possibilities rather than the probabilities, but there is admittedly, a long way to go. (In casino gambling, possibilities are what the amateur gambler assumes; the professional however takes the possibilities and filters them through the probability that an outcome will occur.)

There was also a great deal of concern behind the motivation the employer would use get more folks in the plan. Would they focus their company’s match on their own personal stake in the plan: the company stock? Or would they believe the company match would not be enough of an incentive, or worse, believe that the match is not the reason employees use the plan and reduce or discontinue it. And then along comes the Great Recession to botch up the study.

Many companies recoiling from market losses, not only in share value but in customer support took cost cutting measures beyond the simple adjustments in inventory and cutting workers, turning to the plans they used as incentives to keep employees. They thought logically about the topic and made the guess that those who retained their jobs were not about to risk trying to find another one in a depressed employment market.

The 401(k) contribution match is returning slowly and will come full circle if employment shows any signs of steady recovery. Then, retaining workers will once again be a concern, in large part due to the perception that the business values you enough to offer the match.

The 401(k) can create a good source of retirement income. Studies have shown that if someone contributes regularly from ages 30-62 in a balanced account should be able to retire with about 60% of their pre-retirement income. These are at best generalized assumptions that rely on a stable market, increases in contributions as the employee moves up the income scale and a typical company match of 50 cents on the dollar up to 6% (sometimes it is 100% on the first 3%). Other studies have illustrated that the contribution should be as high as 15% if the plan expects employees to see those sorts of results.

The question the CCR asked boiled down to this: how much does autoenrollment cost the employer? Apparently, quite a lot. So much in fact, that autoenrollment (which comes with an opt out provision) could increase the cost to the employer because of participation in the plan by double. The cost of the company match would also increase as well making the new investors a much more costly undertaking.

But the employer gets a benefit. They tend to pass the nondiscrimination test much more easily. These test are given to companies to prevent highly paid workers from being overly compensated. The more people in the plan, the less likely the rule will be violated. Employers also use the autoenrollment as an incentive in a different way, perhaps even a screening tool. Studies have shown that planners make better workers. If retirement planning is any indication of this trait, the use of the 401(k) can be seen as an indication that the worker is not only focused on the long-term future of his plan, but that of the company’s as well.

With that in mind, autoenrollment becomes part of the compensation package. Raises are now rolled into the plan which further reduces the costs. The matching contribution can be kept for all workers but is in many instances, almost half of what it was before the policy was initiated. Businesses also look to other elements of the benefit package, the CCR report suggest, cutting health benefits in the process. As one hand takes, the other giveth so to speak.

The Urban Institute, in their examination of the problems these employees might face as autoenrollment continues to grow is not so much whether the employer continues to fund the matching contribution, but whether there is anything on the books to make them do so. ERISA was designed to come to the rescue of defined benefit plans, forcing employers to not only keep the plans funded but to also offer pay for insurance so if they fail, the employee is not without a retirement. No such regulation exists for 401(k)s. The very nature of what they are, plans without a long-term promise, no life long retirement income, no government insurance and no requirement to make any sort of matching contribution makes the defined contribution plan ripe for trouble.

The Urban Institute goes so far as to call them investment programs, not pension plans. Even more troubling, a survey done in 2006 found 60% of the companies with plans who responded unaware of any fiduciary responsibility. This leaves the vast majority of us with haphazard plans that do not meet our needs, charge us to much for the service and are otherwise poorly designed.

The Employee Benefits Research Institute suggest the two previous studies used information and methodology that skewed the results. EBRI suggested that the amount of employer contributions actually increased as a result of the autoenrollment program. While their information did not suggest that all employees received the increase, the numbers could have been easily influenced by top tier employees increased contributions.

There is still much to be learned by the idea of autoenrollment and with President Obama’s budget, the presence of autoenrollment will only increase. The important work, unfortunately, will be done after the fact once again.

The concept needs better regulation to work and this can only come from clearly written instructions. Until that happens, businesses will simply buy off the shelf investment programs, seek to shift the responsibility to those vendors and run to the courts if they should be charged otherwise.

Some work could be done on the ERISA plan to help this new era of employee retirement planning but it should start from scratch, be written in barebones language and be used as a leveler of sorts, making the process good for business and the employee.