Automation regulations in workplace retirement accounts have evolved over the past five years, and given that many clients have significant wealth socked away in 401(k) plans, it’s important for wealth managers to keep up to speed.
An analysis shared with ThinkAdvisor by the Colcom Group, a consulting firm, suggests that the increase in set-it-and-forget-it features comes with both benefits and concerns.
As the analysis recounts, both the original Setting Every Community Up for Retirement Enhancement (Secure) Act of 2019 and its follow-up Secure 2.0 legislation introduced significant changes to retirement plan automation, including a requirement for automatic enrollment in most newly established 401(k) and 403(b) plans. Further, employers who establish new 401(k) and 403(b) plans must automatically enroll eligible employees at a minimum contribution rate of 3%, with automatic annual escalation of at least 1% until reaching a minimum of 10% (but not exceeding 15%).
Employees retain the right to opt out or adjust their contribution levels, and the mandate does not apply to small businesses with 10 or fewer employees. Likewise, new businesses in existence for less than three years, church plans or governmental plans are also exempted.
Overall, the provisions represent a positive shift toward enhancing retirement readiness for American workers, the Colcom Group analysis concludes, but automatic enrollment and escalation also pose some challenges for both plan sponsors and participants.
See the accompanying slideshow for a review of eight pros and cons drawn from the report.
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