The Treasury Department and the IRS on Thursday announced new guidance to defined contribution plans offering auto-enrollment features that will make it easier for the plans “to easily correct administrative errors without risking the plan’s tax qualification and without having to obtain IRS approval,” said a joint news release.
“The guidance simplifies and reduces the cost and burden of the correction process if a 401(k) plan or 403(b) plan using automatic enrollment or automatic increases fails to implement the correct amount of employee contribution,” said the news release, adding that the changes were made in response to comments from sponsors and services providers.
“These simplified, safe harbor correction methods build on previous steps to encourage plan sponsors to adopt ‘next generation’ features and practices that help employees save for retirement,” said J. Mark Iwry, deputy assistant secretary for retirement and health policy at the Treasury Department, in the release.
The guidance addresses such issues as DC plans notifying participants of corrections and errors and the cost of correcting certain errors.
“It’s a useful step in making it easier for plan sponsors to adopt auto enrollment and auto escalation,” said Lew Minsky, executive director of the Defined Contribution Institutional Investment Association, in an interview.
Hazel Bradford contributed to this story.