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Summary:
Historically, most employers that have sponsored retirement savings plans under
§401(k) of the Internal Revenue Code (IRC) have required employees to decide whether
to enroll in the plan. The Internal Revenue Service (IRS) has issued rulings to inform
employers that it is permissible under current law to enroll employees in these plans
automatically, provided that the employee is notified in advance and is permitted to
leave the plan if he or she chooses to do so. Automatic enrollment, in which a
percentage of the employee’s salary is placed in an individual account without requiring
the worker to take any action, has been shown to increase worker participation in
§401(k) plans and similar salary reduction retirement savings plans. As of 2003,
automatic enrollment had been adopted by an estimated 8% of §401(k) plans. About 1%
of plans with fewer than 50 participants and 24% of plans with 5,000 or more
participants had adopted automatic enrollment by 2003. This report will be updated as
legislative developments warrant.
