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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.

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