Automatic Enrollment

[Guest Jose Rosario]

Is anyone aware of any guidelines concerning how long a "reasonable period" to provide an employee with and effective opportunity to elect out of an automatic enrollment into a 401(k)

must be, other than a "totality of circumstances" test?

Based on a "totality of circumstances" test and the facts presented in Rev. Rul. 2000-8, assume a plan that permits immediate eligibility and is administratively able to permit immediate entry dates immediately automatically enroll new hires. Thus, if the employer has weekly payrolls and is administratively able to generate paychecks for new hires immediately, a new hire whose first day of work is a payday is effectively given only that very same first day as a reasonable period to elect out!

I think this is "reasonable", relative to the employer's payroll period and practices, as long as the employee may stop contributions at any time.

On the other hand, if an employee is not permitted to stop contributions at any time, "reasonable" should probably bear some relationship to the period of time the employee must wait before stopping contributions.

[Guest FREE401k]

We have a large Plan that has used Automatic Enrollment very successfully for several years. This Plan has quarterly entry dates, but has two administrative practices that might help your situation: 1) the employment application explains the automatic enrollment process, and the prospective employee can elect to participate or not by marking the appropriate spot on the employment application, 2) the Plan Sponsor has a lenient policy about stopping and refunding contributions - if a new employee gets their first paycheck and says they don't want to be in the Plan, the Plan Sponsor will stop their contribution and refund what was deducted. They will do this for the first 30 days that the new employee is in the Plan.