Automatic enrollment for public school employees

[Guest DIY]

The IRS model language for public school 403(b) plans includes an option for automatic enrollment for new employees. But won't they run into state wage withholding issues? Preemption of conflicting state regulation was added to ERISA section 514. But because the public school is a governmental employer, it is not subject to ERISA.

[Peter Gulia]

The IRS language speaks only to what the IRS would recognize concerning 26 U.S.C. 403(b). Further, the IRS expressly stated that some of that language states provisions that might be improper under non-tax law.

For a non-ERISA 403(b) plan of a public-schools employer, an implied-election provision is in many States unlawful, and in some would, if followed, result in a crime.

A public-schools employer should get expert advice about States' laws.