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Debate: Should Retirement Reenrollment Be Made Automatic?

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Two Democrats in Congress have recently introduced legislation aimed at increasing employee participation in employer-sponsored retirement plans.

The Auto Reenroll Act of 2022 would create a requirement that workers reevaluate their decision to opt out of an auto-enrollment retirement plan every three years. The proposed law would amend ERISA and IRC safe harbor rules that apply in the retirement plan context to encourage businesses to adopt these plans in the future.

We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about the newly proposed Auto Reenroll Act.

Below is a summary of the debate that ensued between the two professors.

Their Votes:

Bloink

Byrnes

Their Reasons:

Bloink: Automatic enrollment in company-sponsored retirement plans has been shown to increase the contribution rates among employees who might not otherwise save for retirement. Of course, those plans also give employees the right to opt out of participation at the outset.

This new bill would automatically reenroll the employee in the plan every three years after the employee chooses to opt out of the plan — furthering the goal of auto enrollment in the first place and encouraging overall workplace retirement plan participation.

Byrnes: This legislation wouldn’t do anything but create additional paperwork and headaches for Americans who have already made their retirement savings choices. Employers have the ability to provide employees with information about their retirement savings options and the benefits of those options, including an employer match.

That should be entirely sufficient to allow employees to make their own decisions without creating a new piece of legislation that simply creates more administrative burdens for the employers who offer these retirement plans.

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Bloink: Many employees initially choose to opt out of the retirement plan. This bill would force employees to reevaluate their decision at least once every three years, meaning that more employees would likely elect to remain enrolled in the plan once they’re more financially established — leading to higher savings rates.

Byrnes: We don’t need a law to increase awareness about the importance of retirement savings. Employers who offer a retirement plan and an employee matching contribution should be offering employees information about their right to participate in the plan on a fairly regular basis anyway.

This new legislation would only increase the complexities that exist in today’s qualified plan legal regime.

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Bloink: An auto-reenrollment provision doesn’t have to add to the administrative burden of sponsoring a retirement plan. Employers should be able to simply opt in to the plan feature for employees, which, as the name suggests, would then occur automatically every three years.

The benefits definitely outweigh the burdens here ,and we shouldn’t let a minor inconvenience get in the way of a plan feature that could have significant benefits, especially for lower-earning employees who may not be focused on their retirement savings.

Byrnes: If anything, creating an auto-reenrollment provision would merely add to the administrative headache for employers who decide to sponsor retirement plans for employees.

The fact is, many small-business owners don’t offer a retirement savings option for employees because of the administrative burden. They have enough to worry about.

Making the rules more complex could deter more employers from offering plans and have an impact that’s precisely the opposite of what auto-enrollment is supposed to accomplish: by further limiting the retirement savings options for employees of small businesses.


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