The Treasury Department and the IRS have issued new guidance making it easier for employers to correct unintended contribution errors in retirement plans featuring automatic enrollment and automatic escalation.
It is the latest move by regulators aimed at encouraging sponsors to implement the savings features in retirement plans.
“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,” J. Mark Iwry, senior advisor to the Secretary and Deputy Assistant Secretary for Retirement and Health Policy, said in a press release.
“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,” he added.
The new guidance simplifies and reduces sponsors’ costs when they fail to contribute the correct amount of deferrals through the features, according to the release.
The action was in response to comments from sponsors, their advocates and recordkeepers suggesting the cost of correcting the errors —and the threat of losing tax-preferred status because of infractions — were deterring wider adoption of the features.
New safe harbor procedures allow sponsors to correct missed deferrals without having to notify the IRS, so long as the correction to the participant’s account is made within 9 ½ months from the end of the plan year the error occurred in.