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Good News About Automatic Enrollment!
With The Pension Protection Act provisions for automatic
enrollment plans now law, the result should be a quicker
and easier 401(k) that is a win-win for everyone.
AN
IMPORTANT PART of the Pension Protection Act of 2006
(PPA) makes it easier for employers with
employer-sponsored plans subject to ERISA to enroll
their employees automatically in the plan without the
employee’s consent. Previously, automatic enrollment was
not an option in states with laws prohibiting employer
garnishment of employee wages without the consent of the
employee.
Now, if an
applicable employer plan meets the requirements of an
"eligible automatic contribution arrangement," certain
provisions and safe-harbors are available to the plan.
An eligible automatic contribution arrangement is one
with the following four conditions:
-
The
plan includes a cash or deferred arrangement
-
Employees must affirmatively opt-out not to
participate
-
Employers make default contribution decisions in
accordance with regulations issued by the DOL under
ERISA section 404(c)
-
Notice
requirements are met
Taking The
Lead Against Critical Savings Shortfall Everyone is
aware that Americans need to save much more for their
retirement—primarily by beginning much sooner than they
currently do. Yet recent studies indicate that company
retirement plan participation is lagging. The design of
the automatic enrollment 401(k) is strong and appears to
be a win-win scenario for all parties involved.
An Employee
Research Benefit Institute study found that the number
of employees who participate in a traditional
employer-sponsored pension plan fell by two percent in
2006. The United States Department of Labor found that a
staggering 33 percent of eligible workers currently do
not participate in the 401(k) and other
defined-contribution plans offered by their companies.
Likewise, smaller companies, those with fewer than 100
employees, experienced a drop of more than three percent
in employer-sponsored pension plans.
Simple and
Intuitive Automatic Enrollment simplifies the 401(k) in
intuitive ways. Two of the top issues to be aware of are
the employee notice requirement and that the default
investment must follow DOL criteria to get the ERISA
404(c) limited protection for fiduciary liability and
the 90-day permissive withdrawal feature that are parts
of the new law.
For plans
to satisfy the notice requirement, each employee
eligible to participate must receive a notice within a
reasonable period before each plan year that explains
the employee’s right to elect to not have elective
contributions made on his or her behalf—or to elect to
have contributions made in a different amount. In cases
where the employee may elect among two or more
investment options, the employee must be notified how
the contributions will be invested in the absence of his
or her investment election.
The
employee must be given a reasonable period of time after
receipt of the notice—and before the first automatic
contribution is to be made—to make contributions and
investments elections.
Employers
that want to make use of the automatic enrollment
provisions will have to amend their plan documents to
provide for the feature. Form notices should be
developed. Procedures regarding permissible withdrawals
and corrective distributions will need to be developed.
Given these
reasonable parameters, automatic enrollment should help
employees participate in plans and get into financial
planning and retirement savings activities at a much
more appropriate time in their lives.
Studies
Find High Level Of Employee Support According to a new
study conducted by Harris Interactive, Retirement Made
Simpler, employees are “nearly unanimous” in their
support of being automatically enrolled in their company
401(k) plan. The study found that 98 percent of U.S.
adults currently enrolled in an automatic 401(k) plan
agree they are "glad" their company offered automatic
enrollment, and a full 79 percent expressed "strong
agreement" with their employers' practice.
The study
also found that 95 percent of adults in automatic 401(k)
plans agree that automatic enrollment has made saving
for retirement easy and 85 percent agree that it has
helped them start saving for retirement earlier than
they had planned. A mere seven percent of those who were
automatically enrolled opted out of the plan.
The
Retirement Made Simpler Coalition launched a campaign
announcing the results of their work and also launched a
web site that provides multiple online tools, landmark
studies and the latest research and information to help
human resource professionals and business executives
better understand, build support for, and implement
401(k) automation in their workplace. There are also
success stories and an FAQ/Support page. For more
information, go to www.RetirementMadeSimpler.org.
Employers
And Financial Advisors Benefit Plan participants are not
the only group pleased with automatic enrollment.
Employers can benefit as well. Employers with increased
participation rates will find it easier to satisfy or
even eliminate the non-discrimination testing
requirements that enable them and highly compensated
employees to increase or potentially max out their
salary deferral savings.
They can
also help fulfill fiduciary responsibilities by
selecting an appropriate automatic default investment,
help reduce turnover and training costs in the course of
offering enhanced benefits, and prosper from the
opportunity to attract and retain the quality workers
they need to compete with larger competitors.
Financial
Advisors benefit from the increased participation in
terms of greater ease of the enrollment process, the
opportunity to offer the increased 401(k) options to the
owner and highly compensated employees, and also greater
sales opportunities as they increase their client base.
Automatic
enrollment makes this as exciting a time to be providing
401(k) plans to all businesses of any size in 2008 and
into the foreseeable future.
A
prospectus for the underlying investment options is
available by calling 877-814-401k. The prospectus
contains the investment objectives, risks, fees,
charges, expenses and other information regarding the
underlying funds, which should be considered carefully
before investing. Please read the prospectus carefully
before investing. The unallocated group variable annuity
funding Polaris401(k) is an unregistered product without
a contract prospectus.
Variable
annuities are issued by AIG SunAmerica Life Assurance
Company, except in New York. AIG SunAmerica Life
Assurance Company is a subsidiary of AIG Retirement
Services, Inc. and a member of the American
International Group, Inc. (AIG) family of financial
services companies. The purchase of a variable annuity
is not required for, and is not a term of, the provision
of any banking service or activity. Neither AIG
SunAmerica nor its representatives provide tax or legal
advice. Clients should contact their own tax advisor or
attorney regarding their particular situation.
Distributed by AIG SunAmerica Capital Services, Inc.
21650 Oxnard St., Woodland Hills, CA 91367 (800)
445-7862
Not FDIC or NCUA/NCUSIF Insured. No Bank or Credit Union
Guarantee. May Lose Value.
K-4538-AR3
(2/08)
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