The Mistake
Standard Enrollment Plans
Prior to an employee first becoming eligible for your 401(k) plan, you must provide them with information such as:
- how do they enroll in the plan
- a summary plan description
- if they can direct their own investments, plan investment options and performance data
- participant fee disclosure documents
The employee must then follow the plan’s outlined procedures to enroll and start saving.
From time to time, employers misplace the employee’s enrollment form or misread the website download if they use a website for enrollment. Perhaps an employee is rehired but no one realizes they were eligible to defer again on their rehire date rather than having to re-satisfy the plan’s entry requirements. In each of the cases, the employee missed the opportunity to save or saved an incorrect amount until the error is identified.
Automatic Enrollment Plans
Prior to an employee first becoming eligible for your 401(k) plan, you must provide them with information such as:
- notification they’ll be automatically enrolled if they take no action
- steps they must take to opt out of the plan or change their deferral election
- a summary plan description
- if they can direct their own investments, plan investment options and performance data
- participant fee disclosure documents
The employee must then follow the plan’s outlined procedures or they will commence saving on their entry date into the plan at the default rate.
From time to time, employers fail to realize someone is becoming eligible for the plan. Or, they fail to update the payroll system to reflect the default enrollments are commencing. In either case, employees fail to start saving when they should.