 NEWSLETTERS Volume 1, Issue 1 .................... April 2000 Automatic Deferral – Is it right for your company? Were you aware that the Internal Revenue Service ruled in June 1998 that a 401(k) Plan can provide for the automatic enrollment of employees to defer a fixed percentage of compensation? The sponsoring company is required to provide the employee with an opportunity to make an election not to participate in the plan and to receive the cash or to increase their contribution to the plan. Automatic enrollment can increase participation in a plan, since most plans require employees to complete an enrollment form. Under automatic enrollment plans, an employee’s inaction results in enrollment. There are several issues which employers should be aware of when automatic enrollment is utilized. The most important are to determine how to invest the employee contributions and how the State’s court system will view the withholding of the employee’s compensation. President Clinton endorsed automatic deferral plans at the National Summit on Retirement Savings. Automatic deferral plans do not appear to violate federal wage laws. Automatic enrollment plans may become very popular depending on how State courts rule on these plans. Administrative Retirement Services, Inc.
will keep you informed on the success of these plans and how the State
courts rule on these plans.
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