Res Ipsa Loquitor
RES IPSA
LOQUITOR
IS INERTIA WORKING AGAINST YOUR 401(k) PLAN?
IT MAY BE TIME TO CONSIDER AUTOMATIC ENROLLMENT
I
JOHN C.
GODSOE,
ESQ.
16 | SUMMER 2014
nertia. Webster’s Dictionary
defines it as “the lack of movement
or activity especially when
movement or activity is wanted
or needed.” Plan sponsors and retirement
committees often struggle with 401(k)
plan participation inertia. Employees
who fail to enroll in 401(k) plans when
first eligible often neglect to commence
participation. Employees who initiate
elective deferrals at low rates regularly
continue that trend. Low participation
and deferral rates not only harm affected
employees, but they also represent lost
opportunities for employers. Higher
participation and deferrals rates often
bring with them a number of upsides,
including increased plan assets that may
create the opportunity for lower plan fees
and more favorable nondiscrimination
testing results allowing higher paid
employees to make greater pre-tax
deferrals.
Luckily, plan sponsors have a quiver in
their bow to combat inertia – automatic
enrollment. Automatic enrollment is
a mechanism under which an eligible
employee who does not make an
affirmative election to make pre-tax
contributions to a plan is automatically
enrolled in the plan at a specific pretax contribution percentage, unless
the employee specifically opts out.
Automatic enrollment features are not
new to the 401(k) plan world, but the
Pension Protection Act of 2006 (“PPA”)
added provisions designed to encourage
sponsors of 401(k) plans to add an
automatic enrollment feature.