The American Society of Pension Professionals & Actuaries and the Council of Independent 401(k) Recordkeepers wrote a letter to the U.S. Treasury Department asking for enhancements to the Employee Plans Compliance Resolution System (EPCRS) to encourage companies to include automatic enrollment provisions in their plans.
In the letter, ASPPA and CIKR said that they appreciate the Internal Revenue Service's efforts to continue to increase the standard corrections available under the EPCRS program.
The IRS had requested comments on the latest version of the program regarding methods to correct the failure to implement automatic enrollment with respect to elective deferrals in a 401(k) plan that has an automatic enrollment provision…but where no amounts were withheld from the compensation of an employee who made no election.
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"Recognizing the importance of increasing usage of automatic enrollment in qualified retirement plans, we encourage the Service to expand EPCRS to include an alternative corrective option for the failure of a plan to either automatically enroll participants or automatically increase deferral rates," the letter stated.
The two organizations also recommended that the Service modify the "safe harbor" correction methods under EPCRS to provide that, in the case of a plan with automatic enrollment, if an employee is inadvertently excluded from the plan or his or her deferral rate is not automatically increased in accordance with the plan's provisions, an acceptable correction method would be to make a corrective qualified non-elective contribution with respect to any matching contribution failures occurring during the period of exclusion or non-escalated enrollment rate (adjusted for earnings); and to provide affected participants who remain employed with the opportunity to contribute, out of future compensation, make-up elective deferrals for the amounts that were not withheld.
The Pension Protection Act of 2006 changed the IRS Code and Title I of the Employee Retirement Income Security Act to facilitate and enhance plans that automatically enroll employees. "As a result, there has been a significant increase in the use of automatic enrollment in retirement plans," the letter stated. "According to a recent report, '42 percent of employers automatically enrolled employees into their 401(k) plan, up dramatically from just 5 percent in 2005. At companies with more than 2,500 employees in the plan, 58 percent used automatic enrollment.'"
ASPPA and CIKR believe EPCRS is a great resource for employers, but the correction method for failure to properly automatically enroll workers "has significantly deterred many employers from including this feature in their plans. Our members tell us this is particularly true for smaller plans," the letter stated.
ASPPA is a national organization of more than 10,000 retirement plan professionals who provide consulting and administrative services for qualified retirement plans.
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