Mandatory 401(k) changes: Have you made them?

Excerted from the Executive Report: New Rules for 401(k) Plans: What You Need To Do Now.

In case you missed it, there are new rules for 401(k) plans that companies have to implement. They took effect Jan. 1.

At the root of the Pension Protection Act and its recent updates is the Employee Retirement Income Security Act (ERISA).

This law requires 401(k) plan sponsors to take many of the same steps to protect employees’ retirement money that executives at the company would take to safeguard their own investments.

Under ERISA, the employer can wind up on the hook financially if the investments lose money or if there’s a communication breakdown in educating employees about the workings and risk levels of the choices in the 401(k) plan.

While a few of your employees may be savvy investors who understand the workings of your 401(k) plan, the majority need help making the right choices for their retirement savings.

If ERISA were no obstacle, most employers would have adopted these plan features years ago, especially auto enrollment. For all of its advantages, the opt-out nature of auto enrollment creates a variety of ERISA pitfalls.

• It’s critical that employees clearly understand that money will be withdrawn from their paychecks unless they opt out of the 401(k).
• Equally crucial, it’s critical to explain to employees that no 401(k) plan is immune from financial ups and downs, and different types of investments often carry varying levels of potential financial risk, and
• Upper management in your organization must select and (on an ongoing basis) review the investment options in the 401(k) – both the defaults and alternative options – with the utmost care.

The Pension Act and its recent updates do not lower the bar on any obligations. Rather, it spells out compliance steps that employers must follow to meet these expectations and avoid risking liability if something goes wrong and employees later sue

DIGGING DEEPER
To make sure the new 401(k) obligations are clear, you're invited to check out the Executive Report: New Rules for 401(k) Plans: What You Need To Do Now.