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In August, Congress passed groundbreaking legislation designed to significantly increase the number of employees who participate in and benefit from their company’s 401(k) plan. While many of the provisions will not take effect until 2008, here is a summary of the new 401(k) changes so your company can start planning for them now.
What’s in Store: Components of the Pension Reform Bill:
- Automatic 401(k) Enrollment: Under this reform, employers can automatically enroll employees into a 401(k) plan, even without written consent. While employees can choose to opt-out of enrollment, retirement experts believe that employees will stay put and not take the extra time required to negatively respond.
- Automatic Increases: To ensure employees are properly saving enough for retirement, employers can automatically increase the percentage of an employee’s salary that is allocated to the plan.
- Default Investments: In the absence of any employee investment elections, employers will be able to default their workers into broadly diversified investments, such as age-based mutual funds, in order to help them accrue adequate savings for retirement.
- Advice: Employers will be able to offer investment advice or make investment advice available to their employees, provided that the recommendations are based on a computer model that an independent third party has certified as bias-free.
“There are several million employees in the U.S. who do not participate in a 401(k) plan – even though their companies offer one,” says Gary Weir, Retirement Plan Specialist, The NIA Group. “Many of the employees who do participate are either not saving enough or choosing a mix of funds that may not necessarily provide the best return on investment. The legislation is designed to kick-start 401(k) participation and provide incremental or accelerated growth at specific stages of an employee’s life.”
Questions?
Contact: Gary Weir
Retirement Plan Specialist
201.336.1252
gweir@niagroup.com
Source: Wall Street Journal
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