Revisions to Savings Rules Proposed

As part of a new law designed to encourage more people to save for retirement, the Labor Department has proposed rules to guide companies that automatically enroll workers in certain retirement savings plans, including 401(k)s.

The Pension Protection Act of 2006, signed recently by President Bush, made it easier for companies to force employees to save for their retirement. I used the word "force" but I don't mean it in a negative way. After all, traditional pensions, known as defined-benefit plans, are about as rare as a belt on many a teenager's pants. Both are left hanging.

For the most part, workers are signing up for the defined-contribution plans that replaced them, electing to take pretax dollars and invest them in various investment options, including 401(k)s. But there are still holdouts. About one-third of eligible workers do not participate in defined-contribution plans, according to the Labor Department.

To encourage workers to save, some employers decided to automatically sign up workers. The theory is that once you enroll employees in a 401(k), most won't make the effort to stop the contributions.

Some companies, however, worrying that they may be sued for such a paternalistic move, have balked at creating an automatic enrollment system.

That's where the new law comes in. Chiefly, the law amends the Employee Retirement Income Security Act to shield fiduciaries of individual account plans when certain default investment alternatives are selected for workers. After all, if you're automatically enrolling people, then you have to invest their money somewhere.

ERISA would essentially provide fiduciaries relief from liability for the investment outcomes. To get this liability protection, the Labor Department wants to make sure companies follow certain guidelines. Here are some key things the department proposes:

· Companies have to give employees and beneficiaries 30 days' notice before the money is invested. And they must continue to get such notice each subsequent year.

· Companies have to be clear about the investment options available to those who are automatically enrolled. Employees also have to be informed that they can direct their contributions to other investment options.