SAN FRANCISCO – In an effort to boost U.S. workers' retirement savings, the Labor Department has proposed new rules making it easier for companies to enroll employees automatically in 401(k) and other retirement plans.
The proposed rules would relieve plan sponsors of liability if their automatic-enrollment options had poor investment returns, provided such investments are limited to three default options: target-retirement mutual funds, balanced funds or professionally managed investment accounts.
"The proposed regulations will create a safe harbor for employers to offer a default investment," Secretary of Labor Elaine Chao told reporters on a conference call. "The regulations also give employers the ability to offer balanced investments that have an appropriate risk-return profile for long-term savings."
In addition, the rules would require employers to give plan participants and beneficiaries a chance to make their own investment decisions, plus at least 30 days' notice of the plan's investment choices and a reminder that workers who don't want to be automatically enrolled can opt out of the retirement-savings plan.
About one-third of U.S. workers who could invest in a 401(k) or other defined-contribution plan are not doing so and only about 18 percent of U.S. companies offer automatic enrollment, Chao said.
Many other employers are interested in adopting automatic enrollment plans, Chao said, but the potential liability for investment results has kept them from moving ahead. The proposed rules are designed to alleviate those concerns and could boost workers' plan participation rates to as much as 90 percent, she added.
"This gives employers much greater motivation to go ahead and help to improve the retirement security of their workers," Chao said.
The Labor Department's proposal stems from the pension reform bill that President Bush signed in August, which removed several impediments to automatic enrollment. A key measure amended the Employee Retirement Income Security Act, known as ERISA, to protect companies from liability when workers who don't make their own retirement-plan investments are placed into certain default investment options.
Public comment about the proposal will be taken for 45 days, the Labor Department said, and a final ruling is expected by February.