Good news for the taxpayers!
IRS and the Treasury Department have taken the initiative to make the enrollment easier for taxpayers. They have issued a guidance for automatic enrollment of taxpayers in retirements plans i.e. 401(k) and 403(b) offered by their employers. This will also help in simplifying correction methods when any error occurs.
The guidance was issued in Revenue Procedure 2015-28 and is mainly developed to make easy the automatic enrollment and contribution increases in different retirement saving plans. This also adds up to the self-correction programs where plan sponsors can easily make changes or resolve any administrative errors without having to ask for any approval from IRS or risking plan’s tax qualification.
This move will simplify the correction methods and encourage the plan sponsors to adopt the advanced features and practices that may assist employees to save for retirement. Furthermore, it will reduce the administrative burden and costs incurred in running the correction process if 401(k) or 403(b) plan fail to implement the employee contribution amount correctly.
In this safe correction program for plans with automatic contribution features, plan sponsors are required to make employer matching contributions that had to be made with respect to the employee contributions that were missed and thus, additional amount has to be contributed to compensate for the earnings that could have accrued under the respective plan on those matching contributions. Moreover, the participants of errors and corrections need to be notified through the plan about the given chance to make up for employee contributions that were missed.
The guidance also offers other methods for alleviating costs involved in making corrections in certain errors of 401(k) and other similar plans irrespective of whether they use automatic increases or automatic enrollments.
The new methods are effective instantaneously and can be applied to all the administrative errors that occur before 2021. The guidance has also asked the public to openly give comments for improvement.
It’s a good option to have automatic enrollment in retirement plans in order to increase retirement savings. This improvement will help small businesses to establish retirement plans for their employees with the automatic enrollment feature and help middle-class Americans in making considerate savings for their retirement.