Automatic Enrollment Retirement Plans


Automatic Enrollment Retirement Plans

By Smith & Smith & Ruiz CPA's

Through automatic enrollment, the employer is allowed to deduct elective referrals from the wages of an employee automatically.

However, it is important to keep in mind that the employee is provided with the ability to make a decision whether to allow the employer to deduct elective referrals or not.

On the other hand, the employees can make a decision to contribute an amount of their preferences as well.

Automatic Enrollment Retirement Plans

Source: Dallas News

The employees should figure out that it is up to the employers to provide the option for automatic enrollment retirement plans. If this option is not provided, it is not possible to withhold the deferrals from the wages.

Once the option is provided by the employer, the employee can go ahead and make a decision to withhold a specified amount or not to withhold any money at all.

Moreover, the employees are also provided with the ability to withdraw money within a period of 90 days from the initial automatic contribution. It depends on the plan of the employer.

The automatic enrollment retirement plans can be divided into several categories. The most prominent type out of them is the basic automatic enrollment. This enrollment plan is also considered as Automatic Contribution Arrangement.

In here, the all the employees are usually enrolled into the plan, unless they make the choice to avoid. Moreover, the employees would be allowed to plan for document specifies about the percentage of wages, which needs to be deducted automatically.

As mentioned earlier, the employees would also be able to make a decision whether they should get enrolled to contribute or not.

The second type of automatic enrollment retirement plans is called as Eligible automatic contribution arrangement. Under this enrollment plan, the default deferral percentage is being applied to all the employees after they provide a notice.

Moreover, all the employees are provided with the ability to withdraw their automatic contributions within a period of 90 days from the date where the first automatic contribution is made. It is possible to withdraw the earnings during this time period as well.

The final type of automatic enrollment retirement plan is called as qualified automatic contribution arrangement. This would apply the default deferral percentage of the plan to all employees when they provide a notice.

This plan has the ability to meet the additional safe harbor provisions. As a result, people who get enrolled into this type of plan can stay away from actual contribution percentage and annual actual deferral percentage.

The default deferral percentage begins at 3%. Later it would increase up to a 6% every year that the employee continues with subscription. However, the default percentage would not go beyond 10% under any circumstance.

If the employees don’t make a selection, the employers will have to choose a specific investment plan for the employees. Then the amount determined by the employers would be deducted automatically from the salaries of the employees. The employees can make adjustments to the deferral percentage in here as well.

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