Lawmakers Urge Ending 401(k) Waiting Periods

By Staff Report

Dec. 11, 2007

Congress should seriously consider changing retirement savings plan law to eliminate waiting periods so employees can enroll immediately in 401(k) and other defined-contribution plans, two lawmakers said Tuesday, December 11.

“Long waiting periods don’t make any sense,” Rep. Rob Andrews, D-New Jersey, said during a briefing.

Rep. Andrews and Rep. George Miller, D-California, who chairs the House Education and Labor Committee, said other changes legislators should consider include requiring employers to offer automatic enrollment programs. Currently, about one-third of large employers offer such programs in which employees are automatically enrolled, with a stipulated percentage of their salaries contributed to the 401(k) plan unless they specifically opt out.

“We have to get people into the system,” Andrews said in referring to the need for both immediate and automatic enrollment.

Additionally, the lawmakers said consideration should be given to the federal government matching lower-income employees’ 401(k) contributions. They also said plan participants should have access to independent and unbiased investment advice, and that 401(k) plan investment fees be reasonable and clearly disclosed.

Andrews also said that tighter rules may be needed to make it more difficult for employees to withdraw 401(k) plan account balances prior to retirement, such as requiring that a pre-retirement distribution automatically be rolled over into a savings plan sponsored by an employee’s new employer.

Such distributions are costly to participants, Andrews says. Taxes and penalties are assessed when such funds are withdrawn.

The legislators’ suggestions, which they may turn into legislation, coincided with the release of a Government Accountability Office report which found that many employees eligible for 401(k) plans don’t enroll; of those that do enroll, many don’t put in enough to ensure that they will have adequate savings when they retire.

Filed by Jerry Geisel of Business Insurance, a sister publication of Workforce Management. To comment, e-mail

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