The Treasury Department and the Internal Revenue Service have issued proposed regulations that would make it easier for companies to automatically enroll employees in 401(k) plans at a predefined contribution percentage.
Employers that offer 401(k) plans must specify what contributions, if any, will apply to employees covered under the plan who do not make a specific contribution election. Historically, most employers designed their plans to treat an employee who takes no action as if the employee elected no contributions.
There has been a recent trend, however, toward changing this practice. Under automatic contribution arrangements, the default is switched and employees who take no action are automatically enrolled in the 401(k) plan at a predefined percentage.
A newly released study shows that the majority of employees like automatic 401(k) enrollment. The study, conducted by Harris Interactive, on behalf of Retirement Made Simpler, a coalition formed by AARP, the Financial Industry Regulatory Authority, and the Retirement Security Project, found that 98 percent of U.S. adults currently enrolled in an automatic 401(k) plan said they are glad their companies offer this savings vehicle. Nearly four in five (79 percent) of them expressed strong agreement.
Of those who were automatically enrolled, only 7 percent opted out of the plan. The study also found that 95 percent of adults in automatic 401(k) plans agree that automatic enrollment has made saving for retirement easy and 85 percent agree that it has helped them start saving for retirement earlier than they had planned.
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