For Individuals,For Plan Sponsors

Auto Enrollment Opportunities Expand for Public Sector Retirement Plans

October 30, 2017

Recent IRS ruling approves the successful 401(k) practice for 457(b) plans

A recent IRS Private Letter Ruling could broadly expand the use of auto enrollment in 457(b) retirement plans sponsored by public sector employers. ICMA-RC, which provides retirement plans and related services to more than a million public sector accounts, recently helped a public sector plan sponsor obtain the favorable letter ruling, which incorporates many of the 401(k) auto enrollment rules into 457(b) plans. ICMA-RC will provide its public sector clients with a model 457(b) plan document incorporating auto enrollment based on the plan approved by the Private Letter Ruling.

Auto enrollment is a retirement plan feature that automatically enrolls new employees into theiremployer-sponsored retirement plan while allowing them the ability to opt out at any time. It is used toincrease employee participation in plans and to promote retirement savings. The IRS favorable letterruling is the first to adapt the 401(k) auto enrollment rules to a governmental 457(b) plan. While PrivateLetter Rulings are not considered formal precedent, they do provide insight into the IRS's views. ICMARCexpects its model 457(b) plan will encourage governmental plan sponsors to adopt auto enrollmentin their 457(b) retirement plans within states that allow automatic enrollment.

"ICMA-RC is pleased to have led the industry in advocating for this terrific opportunity for public sectoremployees, many of whom benefit from being automatically enrolled into their employers' retirementplans for the first time," said ICMA-RC President and CEO, Bob Schultze. "Plans that automatically enrollemployees help them build retirement security - which is consistent with ICMA-RC's mission - byincreasing both participation and savings rates."

While some public sector providers have been offering 457(b) plans with auto enrollment, the IRS hasnot provided a formal ruling regarding those plans. The recent IRS Private Letter Ruling should providepublic sector employers who wish to auto enroll employees into a 457(b) plan with comfort that a planwith the auto enrollment features of the ICMA-RC model would not jeopardize the tax-favored status oftheir plans. Auto enrollment for governmental plans may not yet be prevalent as not all states currentlyallow it, however, in recent years, state legislatures appear to increasingly favor auto enrollment.

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