401K - Forced enrollment?

HRratrace · March 2004

Can a company automatically enroll an employee into 401K w/o their permission? I am thinking NO, but my employer is not of the same opinion.

They (my employer) state that if an employee does not decline 401K in writing upon hire, he/she will be automatically enrolled into our 401K program at 1% of their base salary.

Can they do this?

???HELP???

dbutton111 · March 2004

I believe they can. I know a 401k provider that recommends this approach for any company that has problems passing the non-discrim test.

Betty I_O · March 2004

IRS does allow for automatic enrollment unless the employee chooses not to do so. Notice must be give to each employee that the deferral will take effect and when it will be activated. The notice must be given at the time of hire, when the provision takes effect for current employees, and annually thereafter before the beginning of each year. You need to be certain you have the appropriate notifications in place; it may be advisable to consult a benefits attorney.

HRratrace · March 2004

I was under the impression that...

1) 401k is voluntary

2) You can not take any money from an employee's check without their signed written consent.

So are you saying that the above is not correct???

juju · March 2004

I am not sure about mandatory employee contributions - I'm curious about that too. However, our company requires all eligible employees to enroll in our 403(b) plan. Basically all they have to do is let us know how they want our company contribution invested.

lukkieseven · March 2004

We have a 401(k) Plan to which we contribute a percentage of gross at the end of each year. This is automatic for all eligible participants and therefore they MUST enroll. They need to give us their investment choices, otherwise it all goes into an interest account. I must have all participants enrolled by the end of each plan year, because the contributions ,must be distributed to EVERYONE at one time. That's why we put it into the Interest Account in the 401(k) if they have not enrolled and chosen their investment option. They cannot contribute to the 401(k) if they don't enroll.

lnelson · March 2004

[font size="1" color="#FF0000"]LAST EDITED ON 03-18-04 AT 02:24PM (CST)[/font][br][br]We have a 401K safe harbor which I believe is what lukkieseven is referring to there is no Discrim testing. All eligible ee's are enrolled but do not have to participate in making defferrals. As lukkieseven stated at the year end closing distribution is made to all enrolled ee's even if they do not contribrute.

If this is not the type of plan you have you need to refer to your plan summary or TPA for specifics.

Hope this helps.
Lisa

Janet · March 2004

A company I worked for in a previous life did this--negative enrollment. Unless you specifically declined in writing, the company automatically deducted 3% towards 401(k). It was a large, multi-national company, so I'd assume they'd know the regs.

Don D · March 2004

Our does exactly what Janet says. It's automatic and stays automatic unless the employee opts out in writing.

Note: The preceeding is my personal opinion and has no value beyond that. Although it may be 'sorta offensive' or 'indeed offensive' to someone out there, it is offered without regard to that possibility. Should you find yourself alarmed by my post, you may privately mail me to protest or you may alert the principal's office. x:-)

Whatever · March 2004

Our plan gives the ee choices what to invest in.
If the company automatically takes the deduction, where does the company invest the money?

njjel · March 2004

So a company DOES have to give the ee the option to NOT enroll in the company 401(k), 403(b), profit sharing plan? We have a profit sharing plan but employees may not contribute to it just the er does.

njjel · March 2004

Yes, definitely the plan offers fund choices to the ee however if they make none it goes to the guaranteed funds. My question was and still is - is it legal to MAKE them enroll in the plan. It is employer contributed only. Not a match but a quarterly contribution from the company.

HRratrace · March 2004

I guess I am just confused.

It has always been my understanding that the IRS does allow negative elections under Revenue Ruling 98-30; HOWEVER...becuase it does not address federal law/state law preemption, you still must comply with your state withholding laws. TN State Law mandates that no deductions (w/ exception of garnishment, support, taxes, etc) can be taken from an employees check w/o their verbal or written consent.

Hmm...think think think...Oh bother.

Maybe I shoud consult legal counsel...

401K - Forced enrollment?

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