Retirement enrollment rules to undergo change

updated 2:04 p.m. ET Sept. 26, 2006

WASHINGTON - The Bush administration unveiled a proposal Tuesday designed to make it easier for companies to enroll workers in certain pension plans such as 401(k)s, a move supporters hope will improve retirement security for many Americans.

The Labor Department was required to take the action under a revamp of pension policies approved by Congress and signed into law by President Bush in mid-August.

“Too many workers, some overwhelmed by investment choices or paperwork, are leaving retirement money on the table by not signing up for their employers’ defined contribution plan,” said Labor Secretary Elaine Chao. “This regulation would boost retirement savings by establishing default investments for these workers that are appropriate for long-term savings.”

The department said that one-third of eligible workers don’t participate in 401(k)s and other so-called defined contribution plans, which give the employee the option of where to invest the account, usually among stocks, bonds and money market accounts.

The proposal aims to make it easier for companies to automatically enroll workers in such plans. Workers are first given an opportunity to make their investment selections. If a company doesn’t hear back from the employee with specific investment instructions over a certain period, though, the employee will be notified that he or she will be automatically signed up and invested in a mix of stocks and bonds geared to long-term savings — referred to as default investment alternatives. Employees can move their money out of the default investment without a financial penalty.

Only around 18 percent of employers now offer automatic enrollment for 401(k)s and other similar pension plans, department officials said.

The rules would relieve companies from liability for any investment losses to a worker who was automatically enrolled in a qualified default investment alternative as outlined under the proposal. Potential liability has been a major reason why more companies haven’t offered automatic enrollment, department officials said.

Companies, however, would be liable for, among other things, the prudent selection and monitoring of investment plan options, the department said.

The proposal does not require companies to automatically enroll workers in 401(k)s and other such plans. The public and companies will have an opportunity to weigh in on the proposal, which could be revised. The department is required by law to adopt final rules by mid-February of next year.

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