Automatic Enrollment in 401k Plans

The Pension Protection Act of 2006 includes provisions to encourage sponsors of 401(k) plans to automatically enroll eligible plan participants. This differs from previous requirements in which plan administrators would have to send out multiple requests each year, for eligible plan participants, and wait for them to hopefully respond. 

The automatic enrollment mechanism will allow the plan administrators to take out a specific pretax contribution percentage once the employee becomes eligible, unless the employee opts out. 

The Act also explains that the employee’s initial contributions into the plan will be deposited into certain default investment options, if the employee does not complete the necessary paperwork in the appropriate amount of time.  On October 24, 2007, the DOL published a final rule establishing qualified default investment alternatives, making it easier for employers to automatically enroll workers in their 401(k) and other defined contribution plans. 

Further, the IRS issued proposed regulations in November of 2007 to implement automatic enrollment which described 2 types of automatic enrollment arrangements.  

For more information including a fact sheet detailing the rules, go to the DOL’s Web site at http://www.dol.gov/ebsa/regs, or contact us.