“Given the choice, 74% of American workers would rather skip the complicated and labor-intensive process (of active enrollment) and be automatically enrolled in their workplace retirement savings plan.”
Source: Prudential’s Sixth Annual Workplace Report on Retirement Planning (January 2010)
Many workers are looking for an easier way to get started in their workplace retirement plans. Varying investment choices and paperwork are overwhelming obstacles, often preventing participation in offered retirement plans. Automatic enrollment makes it easy for employees to begin saving for their future right away by skipping the complicated decision making that often prevents them from taking action.
About automatic enrollment
Under most 403(b) plans, an eligible employee is considered a participant in the plan only if he or she has signed a salary reduction agreement (SRA) to have contributions deducted from his or her income. If no SRA is signed or if the SRA shows 0% or $0.00, the employee is considered to have “opted out” of plan participation.
Regulations permit another option—automatic enrollment—in which all eligible employees are considered participants of the 403(b) plan (at a default contribution percentage established by the employer) unless they opt out.
Recent changes in the law have made this type of “automatic enrollment arrangement” easier to implement and more acceptable to both employers and employees.
There are several versions of automatic enrollment arrangements, but the one commonly used by 403(b) plans is the Eligible Automatic Contribution Arrangement (EACA). The EACA generally provides the following:
- Employees will automatically be enrolled in the 403(b) plan unless they elect otherwise.
- The 403(b) plan specifies the percentage of an employee’s wages that will be automatically deducted from each paycheck as a contribution to the plan.
- Automatic contributions may be made to a default investment alternative in the event an employee neglects to affirmatively elect to make contributions or opt out.
- EACA permits penalty-free distribution of “accidental” automatic deferrals.
- Employees must be notified in a timely manner of their rights regarding this arrangement.
- The EACA is a no-cost option in the 403(b) plan.
- The 403(b) plan document and/or adoption agreement must permit for the EACA.
Benefits for employers
- Demonstrates employer’s care and concern for employees in a tangible way.
- Offers employees an enhanced benefit plan at no additional cost to the employer (using WEA TSA Trust’s automatic enrollment feature).
- Administrative and technical support to the district’s business office without cost to the district (using WEA TSA Trust’s automatic enrollment feature).
Benefits for employees
- Helps jump-start financial security.
- Engages new employees from day one.
- Employees can opt out at any time.
- Employees can change their investment allocations from the default at any time.
- Gives employees access to retirement consultants and free education.
What you need to know—Default Investment Alternatives (DIA)
In response to the Pension Protection Act of 2006, the Department of Labor established default investment guidance specifically for 403(b) plans subject to the Employee Retirement Income Security Act (ERISA). Public school district 403(b) plans are not subject to ERISA; however, as a matter of best practice, we reviewed the DIA rules and used them as a guide to structure those options in our program.
The categories for a DIA include:
- Lifecycle or target retirement date funds or models;
- Balanced funds or models; and
- Managed funds.
WEA TSA Trust uses target retirement date funds as our DIA option. However, we also offer a broad range of investment alternatives for employees to consider once enrolled.
We are ready to assist you with this valuable feature for your 403(b) plan.
To learn more about automatic contribution arrangements for your 403(b) plan, contact a WEA Member Benefits Retirement and Investment Services Consultant at 1-800-279-4030.
Keep in mind that mutual fund investments are not guaranteed and may gain or lose value. Past performance is no guarantee for future results. Future performance may be lower or higher than past performance.
Before investing in any mutual fund, call WEA Member Benefits at 1-800-279-4030 to request a prospectus. We advise you to read it carefully and consider the fund’s investment objectives, risks, and charges and expenses carefully before investing. The prospectus contains this and other information about the investment company.
Target retirement funds invest in a mix of stock and bond funds that steadily become more conservative as they approach their target date. The principal value of a target retirement fund is not guaranteed and may gain or lose value now and after its target date.
Effective August 2012. Subject to change.