DoL Plans Regulation to Encourage Auto Enrollment

August 22, 2005 ( - The Department of Labor (DoL) plans to propose a regulation by the end of the year that will encourage employers to use automatic enrollment for their 401(k) plans.

Though Hewitt Associates found that automatic enrollment is on the rise, with 19% of employers reporting using the feature, up from 14% in 2003 (See  Hewitt: Auto Plan Features on the Rise in 2005 ), USA Today reports that some companies have not adopted automatic enrollment for fear that employees who lost money in the employer chosen investment would sue.   The DoL says the proposed regulation would provide protection from such lawsuits if the investments the employer chooses are “reasonable”.  

Companies that do use automatic enrollment often chose money market or stable value funds to invest employees’ money.   While taking away the risk, these options do not produce very favorable returns for the employee.   According to USA Today, Ann Combs, assistant secretary of the DoL’s Employee Benefits Security Administration, says the proposed regulations will allow companies to “offer balanced investment options with a little more risk but with returns that allow people to save enough for retirement.”

Jack VanDerhei, a fellow at the Employee Benefit Research Institute, says that if employers see the DoL’s regulation as favorable, it could remove the last barriers to automatic enrollment.   As USA Today points out, taking advantage of 401(k) plans is becoming more important as pension plans are being dropped.