IRS Approves Automatic 401(k) Enrollment

Companies that offer 401(k) plans are becoming more aggressive about automatically enrolling employees in the wake of an Internal Revenue Service blessing on the practice, as long as employees are aware of what is occurring.

While 401(k) plans have been long considered among the best retirement preparation tools, millions of eligible workers are not taking full advantage of the programs, the Sun-Sentinel reported.

Some start with good intentions by committing a percentage of their pay to the savings plans but never increase the contribution as their pay increases. The new IRS ruling gives employers the authority to act when employees do not.

The ruling, made in what the IRS calls a "general information letter," allows companies to automatically enroll employees in a 401(k) plan and even increase their contribution levels on time increments or when employees receive raises or bonuses, the Sun-Sentinel reported.

While some may see Big Brother at work when a company automatically enrolls its employees, the IRS made it clear that employees can opt out at any time.

Karen Ferguson, who as director of the Pension Rights Center in Washington is an advocate for workers, told the Sun-Sentinel that companies are not infringing on employee rights when they enroll them into 401(k) plans without their consent.

"If employees don't have something like this, too many of them are going to end up living on nothing but Social Security when they retire, and that won't even keep them at the poverty level," Ferguson said. "In the old days, companies contributed for you. This is the closest approximation available to today's workers."

Traditionally, companies tell employees about the savings plan and wait for them to take action. In this new scenario, automatic enrollment occurs unless the employees specifically say they don’t want it.

You may like these other stories...

Starting in January 2015, the IRS will limit the number of refunds that are electronically deposited into a single financial account or pre-paid debit card to three, as part of the agency’s effort to crack down on...
House proposes $10.5B, eight-month highway billThe House Ways and Means Committee proposed a transportation funding bill on Tuesday that calls for a temporary extension of current transportation funding levels until May 31,...
Swiss banks threaten freeze on US accounts over tax evasionJames Shotter of the Financial Times reported on Monday that several Swiss banks have threatened to freeze American clients’ accounts unless they prove they...

Upcoming CPE Webinars

Jul 16
Hand off work to others with finesse and success. Kristen Rampe, CPA will share how to ensure delegated work is properly handled from start to finish in this content-rich one hour webinar.
Jul 17
This webcast will cover the preparation of the statement of cash flows and focus on accounting and disclosure policies for other important issues described below.
Jul 23
We can’t deny a great divide exists between the expectations and workplace needs of Baby Boomers and Millennials. To create thriving organizational performance, we need to shift the way in which we groom future leaders.
Jul 24
In this presentation Excel expert David Ringstrom, CPA revisits the Excel feature you should be using, but probably aren't. The Table feature offers the ability to both boost the integrity of your spreadsheets, but reduce maintenance as well.