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Plan Insight

JULY 2010 Newsletter

Why Add Automatic Enrollment to Your 401(k) Plan?

By providing a 401(k) plan to your employees, you have helped many of them start on the road to a secure retirement. You may be looking to increase participation in your plan so that more of your employees will get started. If so, an automatic enrollment 401(k) plan may be the option for you. 

Automatic enrollment permits you to act on your employees’ behalf by getting them to build their retirement savings with pre-tax employee contributions and matching contributions from you.

Currently, about one-third of eligible workers do not participate in 401(k) plans when offered at their workplaces.  Automatic enrollment can reduce the number of employees that do not participate in these plans and can significantly increase their retirement savings.  And once your employees are in the plan, it is likely that they will stay in the plan.  By adding an automatic enrollment feature to your 401(k) plan, you provide your employees with an important long-term benefit that will help you attract and retain qualified employees.

Automatic enrollment 401(k) plans offer additional advantages. Employers may invest the accounts of automatically-enrolled employees in a default investment that is designed to grow employees’ accounts at the pace needed to build adequate retirement savings. Moreover, the employer may be protected from fiduciary liability for having chosen default investments that meet certain requirements.

Automatic enrollment also offers significant tax advantages, including deduction of employer contributions and deferred taxation on contributions and earnings until distribution. Automatic enrollment increases participation, thereby making it more likely that a plan will pass the Internal Revenue Code’s nondiscrimination testing.

With more workers approaching retirement, saving is a high priority. Automatic enrollment 401(k) plans are an effective way to get employees to save now and to continue saving.  Please call us for more information on how to amend your plan to provide this feature.

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Information is provided for review and consideration only. Please consult legal and tax advisors for practical advice pertaining to your business and personal situations.

Material in our newsletter may have been extracted in whole or in part from the IRS Employee Plans publication, and the presence of IRS material does not constitute or imply the endorsement, recommendation, or favoring by the IRS of any opinions, products, or services offered by the sponsor of this web page or document.

This page was last reviewed and/or updated on Monday, December 19, 2011 04:17 PM

 
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