Proposed Bill Would Enhance 401(k) Plan Automatic Deferrals

Sen. Rick Santorum (R-Pa.) has introduced the 401(k) Enhancement Act (S. 1819), a bill intended to stimulate greater employer use of automatic plan enrollment and deferral features.  Under the bill, nondiscrimination safe harbor rules would apply if the following requirements were met. 

  • Absent an employee election not to defer or to defer at a different rate, eligible employees would be enrolled at a deferral rate of at least three percent.
  • Annual increases in deferral rate would be not less than one percent per year (cumulatively to at least 10 percent of compensation).
  • Employers would make matching contributions at a rate of 50 percent of nonHCE deferrals up to six percent of compensation, or make three percent nonelective contributions on behalf of eligible nonHCEs.
  • Conflicting state laws would be superseded.
  • Conforming plans would not be subject to top-heavy rules.
  • Employees would be allowed a three-month period in which to designate amounts automatically deferred as being “erroneous automatic contributions,” with such amounts (to a maximum of $500) treated as not having been deferred, and instead treated as a payment of compensation to the individual.
  • Certain employee notification requirements must be met.
  • Regulations (required by this bill to be written) would govern investment of automatic deferral amounts if employees fail to exercise control of investments.
  • Similar rules could be applied to section 403(b) contracts.