What is Automatic Enrollment?
Starting January 1, 2009, all 401K eligible employees will automatically be enrolled into the plan with a 1% contribution. Employees will be notified each year and given the opportunity to decline participation. If they do not decline, they will be automatically enrolled. Please note employees that are automatically enrolled have up to 90 days to stop participation and receive a full refund.
Automatic enrollment is a 401(k) retirement plan feature that forces employees to opt out of the plan if they do not want to participate. If an employee does not pro-actively opt out, they are automatically enrolled in the plan. This means a percentage of the employee’s salary will be deducted as a contribution to the 401(k) plan. The percentage is referred to as the automatic enrollment default rate. The purpose of automatic enrollment is to boost participation in retirement plans. Many industry insiders and lawmakers fear that most Americans are not saving enough money for retirement. As a response, plan provisions such as automatic enrollment that increase retirement plan participation are a key element of a general strategy to avoid a future crisis. Legislation has also been enacted to target employee retirement plan participation. The way automatic enrollment works is that an employer will adopt the automatic enrollment provision, also known as an automatic contribution arrangemen
The common enrollment technique currently used by most 401(k) plans requires the participant to complete some written form of election to begin payroll deductions and to have these amounts deposited into the retirement plan. Automatic enrollment requires participants to elect not to have their pay contributed to their 401(k) plan. When using automatic enrollment as the plan’s default feature, participants who fail to make an election would have a stated percentage of pay automatically contributed to the plan (usually 1% to 3%) regardless of their wishes. IRS Revenue Ruling 98-30 states that the employer must notify its employees of the automatic enrollment feature of the plan by giving the employee (1) the right to elect not to contribute to the plan; (2) the right to contribute at a different rate other than the automatic enrollment default deferral rate; and (3) written procedures for requesting a deferral rate change (this notice must be distributed annually). The plan document must
