The Treasury Department and Internal Revenue Service on Thursday issued guidance designed to facilitate automatic enrollment and contribution increases in 401(k) and similar retirement savings plans through a “correction safe harbor.”
The guidance adds to the current IRS self-correction program, which allows plan sponsors to easily correct administrative errors without risking the plan’s tax qualification and without having to obtain IRS approval.
“Today, Treasury and IRS are taking another step to promote broader participation in 401(k) and similar plans by facilitating automatic enrollment and automatic contribution increases,” said J. Mark Iwry, senior advisor to the secretary and deputy assistant secretary for retirement and health policy, in a statement. “These simplified, safe harbor correction methods build on previous steps to encourage plan sponsors to adopt ‘next generation’ features and practices that help employees save for retirement.”
Senate Finance Committee Ranking Member Ron Wyden, D-Ore., said Thursday that the guidance will “facilitate automatic enrollment in and contributions to 401 (k) and similar retirement plans by improving the process for correcting errors to make it easier for businesses to maintain these plans for their workers.”
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These improvements from Treasury and IRS “mark an important step in helping millions of Americans save for a secure retirement,” Wyden said. “Automatic enrollment in retirement plans is a promising method to increase retirement saving. The changes made today will make it easier for small businesses to set up a retirement plan with automatic enrollment features and help more middle-class Americans prepare for retirement.”
Wyden and several other Democratic members of the Finance Committee sent a letter last year to the Treasury Department requesting action on the issue.
The guidance also provides other new safe harbor methods to simplify and reduce the cost and burden of correcting certain errors in 401(k) and similar plans regardless of whether they use automatic enrollment or automatic increases.