Automatic 401(k) enrollment

[Guest rickjim]

Just read in a newsletter from a regional CPA firm that the IRS has approved concept of automatic enrollment in 401(k). i.e. when eligible the ee is enrolled at X% in a given fund (e.g Moderate Lifestyle) and must take action NOT to be in plan. Anyone heard of or done this? Must be given plenty of advance notice to say "no". What about beneficiary choices?

[Guest HD WILLIAMS]

Even though the IRS has given approval to this arrangement, be careful. State laws may not allow for this type of enrollment. It has not been determined whether federal or state law will take precedence where there are differences. If the plan has more than one investment option, the fiduciary may have a liability problem. If an ee dosen't waive entrance into the plan, the chances of the ee making an investment election are probably small. The fiduciary cannot make the investment decision for the ee. What happens then to the automatic deferral? Even if one of the options is a money market fund, I don't think it is responsible for the fiduciary to deposit the deferral into that fund. Before an employer makes a decision to add automatic enrollment, be sure the employer consults an attorney.