President Bush has signed H.R. 4, the Pension Protection Act of 2006, into law.

The bill is mostly sound and fury, signifying nothing. The Pension Benefit Guaranty Corporation will be “saved,” even though we were repeatedly assured until now that there was in fact nothing to “save” it from. Private employers will be required, over time, to go from 90% funding to 100% funding of their pension plans — which is nothing more than hollow accounting gimmickry. And the real volcanoes under the city — public employee pensions — are not addressed at all. Neither of course is the Social Security crisis.

But one afterthought of the bill is worth looking at:

Employers can encourage their workers to save by automatically enrolling them 401(k) retirement accounts.

This proposal has been bouncing around for years. A good primer on the subject is available from the Congressional Research Service.

The phenomenon of 401(k) under-participation has been cited, repeatedly, as an example of “irrational behavior,” especially when the employer matches employee contributions. “Who would turn down free money?” Yet people do, in surprisingly large numbers.

And it is a small step indeed (for a politician, at least) from observing “irrational behavior” to calling for paternalism to correct it — i.e., passing laws compelling people to be “rational.”

Libertarians, and I’m guessing many Overlawyered readers, love to get indignant over paternalism. Motorcycle helmet laws and seatbelt requirements come to mind, as do the War on Tobacco and the War on Obesity. Why exactly should the government care if a motorcyclist chooses to undertake the “irrational” risk of not donning a helmet? What right does the government have to compel you to watch your weight?

Typically the non-libertarian response is that the helmetless motorcyclist has no “right” to risk, “unnecessarily,” the consumption of healthcare resources (i.e., an emergency room) should he be injured in a way that would not occur had he been wearing a helmet. This argument gains traction under a system of publicly financed healthcare.

To which the libertarian response is typically, “Well, we shouldn’t have publicly financed healthcare!” But that’s another blogpost.

Let’s circle back to 401(k) enrollment. Under the new PPA, employers will now be authorized to automatically enroll new employees in a 401(k) plan — but with an opt-out provision. In other words, whereas before an employee had to take action to get into the 401(k) plan, now she must take action to get out of it.

Clearly such a plan is a paternalistic undertaking. Who cares if an employee is too stupid, or too myopic, to enroll in a 401(k) plan? That’s her problem, right?

On the other hand, a provision such as this is probably so minor, so unobtrusive, that it’s hard for even the most dedicated libertarian to oppose it. Even if a particular employee accrues no benefit from the policy (i.e., she doesn’t want to be enrolled), the cost (i.e., the time and effort to opt out) is arguably so minuscule as to deserve an exemption from any libertarian indignation.

On the other other hand (it’s the economist in me!), a proposal to mandate 401(k) enrollment without an opt-out provision would of course be an impermissible infringement on personal autonomy. The government has no legitimate basis to force people to save for their retirement. (Of course, when the government forces workers to pay for other people’s retirements, then it’s called “Social Security” and is considered perfectly hunky-dory. Go figure.)

To summarize, although it is not a proper function of government to proscribe “bad” decision making, perhaps a few isolated, objectively defensible carve-outs can be allowed in which the government makes it just a little bit harder to make a “bad” decision. Perhaps. Stated differently, a paternalistic exception that actually proves the libertarian rule should probably be embraced and not shunned.

(In Part Two I will examine another fashionable “financial paternalism” trend — banning so-called “payday loans” and similar schemes.)

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