Automatic Enrollment Safe Harbor plans

[Brenda Wren]

We are starting to receive calls from brokers eager to sell these things. I don't really see the appeal in automatically enrolling employees so that you can fund a free match for them, but I guess others do! Seems to me a regular safe harbor match plan would be the better alternative if you are willing to commit to employer contributions from the start.

The automatic increases are cumbersome, too, so unless the client is willing to do a lot of work on their end, they might as well enroll at 6% to start with. Hope they don't come looking to me to do this for them! I don't see how a TPA can help unless they go into the payroll business! Comments?

Vesting - seems everyone is much more excited than I am about 2 year cliff vesting. What am I missing here? If you design your plan to keep costs down, i.e. use maximum eligibility requirements of One Year, Age 21 with dual entry, by the time someone enters the plan they'll have 2 years of vesting.....unless you use the "elapsed time" method for calculating vesting years. We administer about 500 plans and only 2 of them use elapsed time.

Speaking of elapsed time.....seems we're not the only ones that use the 1,000 hours method. I believe it is by far the most common method used in the southeast region of the country...maybe other areas as well. But why is the 1,000 hour method so much more common? Seems elapsed time would be easier, take longer to vest and have a meaningful effect with the new Automatic Enrollment Safe Harbor plans. Comments?

While I'm on my soapbox......seems to me that automatic enrollment is a good thing (aside from the safe harbor rules) and it is important to increase the retirement savings rate of employees. But as long as you are permitted to "blow your wad" when you terminate employment, NOTHING will be accomplished in the long run. Money in, money out with no real results. Retirement savings rates may appear to go up but not retirement account balances. The same people that don't bother to fill out the enrollment forms are the same ones that will take a lump sum distribution at the first opportunity.