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Over the last few years, there have been significant changes to regulations governing retirement saving plans. This includes updates to how employer-sponsored retirement plans work, and several states have introduced retirement plans for those without a plan option. Several parcels of legislation have been designed to make plan participation, access, and savings easier for workers. Most recently, the SECURE Act 2.0, signed into law on December 29, 2022, called for sweeping changes in how 401(k) and other plans work. Some of these changes include an increase in the catch-up contribution amounts, changes to the required minimum distribution (RMD) rules, and automatic enrollment for new plans. There were so many changes that provisions were scheduled to go into effect over a five-year period.
However, given the state of retirement savings, Congress is keen on passing additional legislation designed to build upon the already enacted reforms. In late August, another parcel of legislation was introduced in the Senate, known as the Auto Re-Enroll Act of 2023. If passed, it would allow employers to adopt a new plan type that would permit the automatic re-enrollment of those who had previously opted out. To help clients, prospects, and others, JLK Rosenberger has provided a summary of the key details below.
The legislation aims to increase participation in employer-sponsored retirement plans by encouraging automatic re-enrollment. Of course, workers will retain the choice to opt out if they choose to do so. For many, the practice is automatically enrolling a worker into the company’s retirement plan at the start of employment, but many choose to opt-out. Unfortunately, when this happens, the worker forgets about the plan and does not revisit the option.
The proposed legislation would offer a second chance to participate as careers progress and financial situations change. This would allow them to start saving for retirement and take advantage of valuable employer-matching contributions. This proposed legislation is important because it is estimated there are currently 17.5 million workers not taking advantage of this retirement savings boost.
- Automatic Re-enrollment – The legislation would permit employers to automatically re-enroll an employee who had previously opted out once every three years. Once completed, the worker would be enrolled in the plan using the default contribution rate unless a second opt-out is requested.
- One-Time Process – To make the process easier for plan sponsors, there is a provision that permits all auto re-enrollments to occur at the same time. This would relieve the plan from the need to individually conduct the process based on an individual’s eligibility date, etc.
- ERISA Update – The legislation would enhance automatic enrollment plans by amending safe harbor rules in the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code (IRC).
While the Auto-Reenroll Act was only recently introduced, it will take some time before it works through the Senate and Congress. However, it does provide important insights for plan sponsors on the changes that may be coming. If you have questions about the information outlined above or need assistance with your next retirement plan audit, JLK Rosenberger can help. For additional information, call 818-334-8646 or click here to contact us. We look forward to speaking with you soon.