New Bill Expands Mandate for Auto Enrollment in Retirement Plans

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We all know how important the increasingly popular concept of auto-enrollment has been for increasing 401k plan participation rates, so any effort to further boost its use is welcome news to help participants save for retirement.  This being the case, let’s take a closer look at this particular provision of the newly introduced bipartisan retirement reform bill meant to build on last year’s SECURE Act. Call it a “Section 101 101,” if you will.

Section 101 of the proposed bill tackles a provision that would require participants to be automatically enrolled in new 401k plans along with auto-escalation up to 10%.

Section 101 explains in its text that many employees who are offered a 401k plan at work do not participate when they are not automatically enrolled upon becoming eligible. It goes on to note how being automatically enrolled has been shown to significantly increase participation, since many employees don’t take the initiative to “opt-out.”

From the text of Section 101:

Since first defined and approved by Treasury in 1998, automatic enrollment has boosted participation by eligible employees generally, and particularly for Black, Latinx, and lower-wage employees. An early study found that adoption of auto-enrollment increased participation in a 401(k) plan by short-tenure Latinx employees from 19% to 75%. An Ariel Aon-Hewitt Study found that, in plans using auto-enrollment, “[t]he most dramatic increases in enrollment rates are among younger, lower-paid employees, and the racial gap in participation rates is nearly eliminated among employees subject to auto-enrollment.”

If the “Securing a Strong Retirement Act” were to become law, 401k, 403b, and SIMPLE plans would be required to automatically enroll participants in the plans upon becoming eligible (and the employees may opt-out of coverage).

The initial automatic enrollment amount is at least 3% but no more than 10%. And then each year that amount is increased by 1% until it reaches 10%.

Importantly, all current 401k, 403b, and SIMPLE plans are grandfathered, and there is an exception for small businesses with 10 or fewer employees, new businesses (i.e., have been in business for less than 3 years), church plans, and governmental plans.

 If you’d like more clarification on this bill or are interested in learning more about our 401k management solutions, please contact Dennis Tender at DP Grow: • 804.729.3819

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