Automatic enrollment

[katieinny]

An existing 401(k) plan is being amended to add the automatic enrollment feature. Rev. Ruling 2000-8 says that employees must be given reasonable notice prior to the effective date of the amendment. I'm thinking 30 days is fine, but maybe I shouldn't be so cavalier. So, I'm asking for other opinions.

[JanetM]

IMHO if you give them longer period no one would opt out because they forgot. Then they get the first check with the deferrals taken out and they run screaming to payroll/HR asking who no one reminded them.

Now you have to pay fees for very small balance participant accout. If fee comes from accout balance the person will soon be reduced to zero.

I would never give more than 30 days, and give them a reminder if possible.

[ERISAnut]

Hence the term "facts and circumstances". The entire idea is not to catch the participants by surprise but ensure they realize that unless they act, the automatic deferrals will be made. Therefore, it is not so much a time-frame standard; but a "please don't let this thing backfire" standard.

Once these are made under the automatic enrollment rules, they are deemed to have been elected by the employee and are then subject to the withdrawal restrictions of 401(k)(2). So, provide the notice and communicate what the notice means if you have to in order to ensure employees know to act if they do not wish to contribute.

[E as in ERISA]

Pending legislation would provide an "un-do" distribution for participants who didn't pay attention to the notice and then opt out after a small amount has been withheld. If you wait, you'd be able to use that to get rid of those small balances.