AUTOMATIC

ENROLLMENT

401(k) PLANS for Small 

Businesses
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Automatic Enrollment 401(k) Plans for Small Businesses is a joint project of the 

U.S. Department of Labor’s Employee Benefits Security Administration (DOL/EBSA) 

and the Internal Revenue Service.

To view this and other EBSA publications, visit the agency’s website at:

dol.gov/ebsa.

To order publications or to request assistance from a benefits advisor, 

contact EBSA electronically at:

askebsa.dol.gov.

Or call toll free: 866-444-3272.

Automatic Enrollment 401(k) Plans for Small Businesses (IRS Publication 4674) 

is also available from the Internal Revenue Service at:

800-TAX-FORM (829-3676).

(Please indicate catalog number 51461H when ordering.)

This material will be made available in alternative format to persons with disabilities 

upon request:

Voice phone: 202-693-8664

TDD: 202-501-3911

This publication constitutes a small entity compliance guide for purposes of the Small Business Regulatory Enforcement Fairness Act of 1996.

It does not constitute legal, accounting, or other professional advice.
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WHY AN AUTOMATIC 

ENROLLMENT 401(k) PLAN?

Do you want a retirement plan that provides 

a high level of participation and makes it 

easy for you to withhold employee contributions and select the investments for those 

contributions? Then you may want to consider an automatic enrollment 401(k) plan. 

Approximately 30 percent of eligible workers 

do not participate in their employer’s 401(k)-

type plan. Studies suggest that automatic 

enrollment plans could reduce this rate to 

less than 15 percent, significantly increasing retirement savings. Whether you already 

have a 401(k) plan or are considering starting 

one, automatic enrollment 401(k) plans offer 

many advantages.

An automatic enrollment 401(k) plan: 

q Helps attract and keep talented employees.

q Increases plan participation among both 

rank-and-file employees and owners/

managers.

q Allows for salary deferrals into certain 

plan investments if employees do not 

select their own investments.

q Simplifies selection of investments appropriate for long-term retirement savings for 

participants.

q Helps employees begin saving for their 

future.

q Offers significant tax advantages (including deduction of employer contributions 

and deferred taxation on contributions 

and earnings until distribution). 

This publication provides an overview of 

automatic enrollment 401(k) plans. For more 

information, resources for both you and your 

employees are listed at the end of this 

booklet.

ESTABLISHING AN 

AUTOMATIC ENROLLMENT 401(k) 

PLAN

When you establish an automatic enrollment 401(k) plan you must take certain basic 

actions. One of your first decisions will be 

whether to set up the plan yourself or to 

consult a professional or financial institution 

– such as a bank, mutual fund provider, or 

insurance company – to help with establishing and maintaining the plan. In addition, 

there are four initial steps for setting up an 

automatic enrollment 401(k) plan:

1) Adopt a written plan document, 

2) Arrange a trust for the plan’s assets, 

3) Develop a recordkeeping system, and 

4) Provide plan information to employees 

eligible to participate. 

Adopt a written plan document — Plans 

begin with a written document that serves 

as the foundation for day-to-day plan operations. If you have hired someone to help 

with your plan, that person likely will provide the document. If not, consider obtaining 

assistance from a financial institution or retirement plan professional. In either case, you 

will be bound by the terms of the plan document. Before adopting a plan document, you 

will need to decide on the type of automatic 

enrollment 401(k) plan that is best for you. 

A basic automatic enrollment 401(k) plan

must state that employees will be automatically enrolled in the plan unless they elect 

otherwise and must specify the percentage of 

an employee’s wages that will be automatically deducted from each paycheck for contribution to the plan. The document must also 

explain that employees have the right to elect 

not to have salary deferrals withheld or to 

elect a different percentage to be withheld. 

An eligible automatic contribution 

arrangement (EACA) is similar to the basic 

automatic enrollment plan but has specific 
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notice requirements. An EACA can allow 

automatically enrolled participants to withdraw their contributions within 30 to 90 days 

of the first contribution.

A qualified automatic contribution 

arrangement (QACA) is a type of automatic 

enrollment 401(k) plan that automatically 

passes certain kinds of annual required 

testing. The plan must include certain 

features, such as a fixed schedule of 

automatic employee contributions, employer 

contributions, a special vesting schedule, 

and specific notice requirements. 

While this booklet focuses on automatic 

enrollment 401(k) plans, the automatic 

enrollment feature also can be used in 

403(b), governmental 457(b), and SIMPLE 

IRA plans.

Arrange a trust for the plan’s assets

— An automatic enrollment 401(k) plan’s 

assets must be held in trust to assure that 

the assets are used solely to benefit the participants and their beneficiaries. The trust 

must have at least one trustee to handle 

contributions, plan investments, and distributions. Since the financial integrity of the plan 

depends on the trustee, selecting a trustee is 

one of the most important decisions you will 

make in establishing an automatic enrollment 

401(k) plan. If you set up your plan through 

insurance contracts, the contracts do not need 

to be held in trust.

Develop a recordkeeping system — An 

accurate recordkeeping system will track and 

properly attribute contributions, earnings and 

losses, plan investments, expenses, and benefit distributions. It will also provide a record 

of employees who elect not to participate as 

well as participant contribution and investment decisions. If a contract administrator 

or financial institution assists in managing the 

plan, that entity typically will help keep the 

required records. In addition, a recordkeeping system will help you, your plan administrator, or financial provider prepare the plan’s 

annual return/report that must be filed with 

the Federal Government. 

Provide plan information to employees 

eligible to participate — You must notify 

employees who are eligible to participate in 

the plan about certain benefits, rights, and 

features. Employees must receive an initial 

notice prior to automatic enrollment in the 

plan and receive a similar notice each year. 

In addition, a summary plan description 

(SPD) must be provided to all participants. 

The SPD is the primary document to inform 

participants and beneficiaries about the plan 

and how it operates. The SPD typically is 

created with the plan document. (For more 

information on the required contents of the 

SPD, see Disclosing Plan Information to 

Participants.) You also may want to provide your employees with information that 

discusses the advantages of your automatic 

enrollment 401(k) plan. The benefits to 

employees – such as pre-tax contributions 

to a 401(k) plan (or tax-free distributions in 

the case of Roth contributions), employer 

contributions and compounded tax-deferred 

earnings – help highlight the advantages of 

participating in the plan. 

OPERATING AN AUTOMATIC 

ENROLLMENT 401(k) PLAN 

Once you have established an automatic 

enrollment 401(k) plan, you assume certain 

responsibilities in operating it. If you hired 

someone to help in setting up your plan, that 

arrangement also may have included help in 

operating the plan. If not, another important 

decision will be whether to manage the plan 

yourself or to hire a professional or financial 

institution — such as a bank, mutual fund 

provider, or insurance company — to take 

care of some or most aspects of operating the 

plan. 
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Elements of operating automatic enrollment 

401(k) plans include:

q Participation

q Contributions

q Vesting

q Nondiscrimination 

q Investing the contributions

q Fiduciary responsibilities

q Disclosing plan information to participants 

q Reporting to government agencies

q Distributing plan benefits

Participation 

Employees are automatically enrolled in 

the plan and a specific percentage will be 

deducted from each participant’s salary unless 

the participant opts out or chooses a different 

percentage.

However, as with any 401(k) plan, an automatic enrollment 401(k) plan may exclude 

some employees if they:

q Have not attained age 21;

q Have not completed one year of service; 

 or

q Are covered by a collective bargaining 

agreement that does not provide for participation in the plan, if retirement benefits 

were the subject of good faith bargaining. 

Employees cannot be excluded from a plan 

merely because they are older workers.

 

Contributions

Basic Automatic Enrollment 401(k) Plans

and EACAs 

As with any 401(k) plan, in addition to 

employee contributions (made through 

salary deductions), you decide on your 

business’ contribution (if any) to participants’ accounts in your plan. If you decide to 

make contributions to your automatic enrollment 401(k) plan for your employees, you 

have additional options. You can match the 

amount your employees decide to contribute 

(within the limits of the law) or you can 

contribute a percentage of each employee’s 

compensation (called a nonelective contribution) or you can do both. You have the 

flexibility of changing the amount of matching and nonelective contributions each year, 

according to business conditions. 

QACAs

With a QACA, the initial automatic employee 

contribution must be at least 3 percent of the 

employee’s compensation. Contributions may 

have to automatically increase so that, by the 

fifth year, the automatic employee contribution is at least 6 percent of compensation. 

The automatic employee contributions cannot 

exceed 10 percent of compensation in any 

year. The employee is permitted to change 

the amount of his or her employee contributions or choose not to contribute, but must 

do so by making an affirmative election. 

You must make at least either:

q	 A matching contribution of 100 percent 

for salary deferrals up to 1 percent of 

compensation and a 50 percent match for 

all salary deferrals above 1 percent but no 

more than 6 percent of compensation; or

q	 A nonelective contribution of 3 percent of 

compensation to all participants.

In a QACA, you may make additional contributions to employees’ accounts. You have the 

flexibility of changing the amounts of these 

additional contributions each year, according 

to business conditions. 

Contribution Limits

Employer and employee contributions and 

forfeitures (nonvested employer contributions 

of terminated participants) are subject to a 

per-employee overall annual limitation. This 

limit is the lesser of: 

q 100 percent of the employee’s compensation, or

q $51,000 for 2013 and $52,000 for 2014.
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In addition, the amount employees can 

contribute under any automatic enrollment 

401(k) plan is limited to $17,500 for 2013 and 

2014. This includes both pre-tax employee 

salary deferrals and after-tax designated Roth 

contributions (if permitted under the plan).

Like any other 401(k) plan, an automatic 

enrollment 401(k) plan may allow catch-up 

contributions of $5,500 for 2013 and 2014 for 

employees age 50 and over.

Vesting

All employee contributions are immediately 

100 percent vested — that is, the money that 

an employee has contributed to the plan cannot be forfeited. When an employee leaves 

employment, he or she is entitled to those 

deferrals, plus any investment gains (or minus 

losses) on the deferrals. 

Employer contributions are vested according to the plan’s vesting schedule. However, 

the required employer contributions under 

a QACA must be fully vested by the time an 

employee has completed two years of service.

Nondiscrimination

To preserve the tax benefits of a 401(k) plan, 

the plan must provide substantive benefits 

for rank-and-file employees, not just business 

owners and managers. These requirements are 

called nondiscrimination rules and compare 

both plan participation and contributions of 

rank-and-file employees to owners/managers.

Basic automatic enrollment 401(k) plans and 

most EACAs are subject to annual testing to 

ensure that the amount of contributions made 

for rank-and-file employees is proportional to 

contributions made for owners and managers. 

Keep in mind, automatic enrollment increases 

participation, thereby making it more likely 

that a plan will pass the test. Automatic 

enrollment 401(k) plans set up as QACAs are 

not subject to this annual testing.

Investing the Contributions

Federal law makes automatic enrollment 

401(k) plans an attractive option by addressing employers’ concerns about potential liability for their investment choices when participants do not provide direction and deducting 

employees’ contributions from their paychecks 

without prior approval.

You can automatically invest employee contributions in certain default investments that 

generally offer high rates of return over the 

long term and provide a greater opportunity for employees to save enough money to 

take them through retirement. If carried out 

properly, you can limit your liability as plan 

fiduciary for any automatic enrollment 401(k) 

plan losses that are a result of investing participants’ contributions in these default investments. Note that you still are responsible for 

prudently selecting and closely monitoring 

these default investments. (See Fiduciary 

Responsibilities for more information.)

There are conditions to obtain this relief from 

liability:

q Plan sponsors place the participant’s contributions in certain types of investments 

(discussed below). 

q Before his or her first contribution is 

deposited, the participant receives a notice 

describing the automatic enrollment process (discussed below); a similar notice is 

sent annually thereafter. 

q The participant does not provide investment direction. 

q The plan passes along to the participant 

material related to the investment, such as 

prospectuses.

q The participant is given the opportunity 

periodically to direct his or her investments from the default investment to a 

broad range of other options. 
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Qualified Default Investment Alternatives

As noted in the first condition listed above, 

there are certain criteria for the default investments. You can choose from four types of 

investment alternatives for employees’ automatic contributions, called qualified default 

investment alternatives, or QDIAs. Three 

alternatives are diversified to minimize the 

risk of large losses and provide long-term 

growth. They are:

q A product with an investment mix that 

changes asset allocation and risk based on 

the employee’s age, projected retirement 

date, or life expectancy (for example, a 

lifecycle fund);

q A product with an investment mix that 

takes into account a group of employees as a whole (for example, a balanced 

fund); and

q An investment management service that 

spreads contributions among plan options 

to provide an asset mix that takes into 

account the individual’s age, projected 

retirement date, or life expectancy (for 

example, a professionally managed 

account).

These alternatives can include products 

offered through variable annuity contracts 

and other pooled investment funds. 

There is an alternative that allows plans to 

invest in capital preservation products, such 

as money market or stable value funds, 

but only for the first 120 days after the participant’s first automatic contribution. This 

option can be used only in EACAs that permit 

employees to withdraw their automatic contributions and earnings between 30 and 90 days 

(as specified in the plan) after the participant’s first automatic contribution. Before the 

end of the 120-day period, if you receive no 

direction, you must redirect the participant’s 

contributions in the capital preservation product to one of the long-term investments mentioned above.

When selecting products to use as default 

investments, remember that they generally 

cannot hold employer securities (such as 

employer stock). 

Note that you do not have to select a QDIA 

for your plan. You may find that other 

default investment alternatives would be 

more appropriate for your employees.

Notifying Employees 

Under another condition for the liability 

relief, you must provide employees notice in 

advance of the first investment of automatic 

employee contributions and annually thereafter, so they can make informed decisions 

regarding participating and investing in the 

plan. For information on the timeframes for 

providing the notices, see Disclosing Plan 

Information to Participants.

The notice should include information about 

the automatic contribution process, including 

the opportunity to elect out of the plan. In 

addition, the notice must describe the default 

investment the plan is using, the participants’ 

right to change investments, and where to 

obtain information about other investments 

offered by the plan. To help in preparing 

your notice, a sample notice is available on 

the DOL website under “Pension Protection 

Act.” 

If the participant, after receiving the initial or 

annual notice, does not provide investment 

direction, the participant is considered to 

have decided to remain in a default investment. 

Transferring or Withdrawing Investments from a 

Default Investment

Employees may not want to participate in the 

company retirement plan, or they may decide 

to direct their plan investments themselves 

rather than have their contributions invested 

on their behalf. Participants whose contributions are automatically deposited in the 

default investment must be allowed to change 
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their investments to other available plan 

options as frequently as participants who 

actively chose the default investment, and at 

least once every quarter. If you want to allow 

participants to withdraw their contributions 

within 30 to 90 days of their first contribution, your plan document must provide for 

this and be set up as an EACA. 

If an employee decides to withdraw investments within 30 to 90 days of the first contribution or to change investments, the plan 

cannot impose restrictions, fees, or expenses 

beyond standard fees for services such as 

investment management and account maintenance. Further, participants should not 

be subject to penalties such as surrender 

charges, liquidation fees, or market value 

adjustments. 

All participants in the plan must be offered 

an opportunity to diversify their portfolios 

with a broad range of other options in addition to the default investments. You can limit 

your liability for the participants’ investment 

decisions if you set up your plan properly. 

(See Limiting Liability for more information.)

Fiduciary Responsibilities

In addition to selecting and monitoring the 

default investments for automatic employee 

contributions, many of the other actions 

needed to operate an automatic enrollment 

401(k) plan involve fiduciary decisions. This 

is true whether you hire someone to manage the plan for you or do some or all of 

the plan management yourself. Controlling 

the assets of the plan or using discretion in 

administering and managing the plan makes 

you and the entity you hire a plan fiduciary 

to the extent of that discretion or control. 

Hiring someone to perform fiduciary functions is itself a fiduciary act. Thus, fiduciary 

status is based on the functions performed for 

the plan, not a title. 

Some decisions with respect to a plan are 

business decisions, rather than fiduciary decisions. For instance, the decisions to establish 

a plan, to include certain features in a plan, 

to amend a plan and to terminate a plan are 

business decisions. When making these decisions, you are acting on behalf of your business, not the plan, and therefore, you would 

not be a fiduciary. However, when you take 

steps to implement these decisions, you (or 

those you hire) are acting on behalf of the 

plan and thus, in making decisions, are acting 

as fiduciaries. 

Basic Responsibilities

Those persons or entities that are fiduciaries 

are in a position of trust with respect to the 

participants and beneficiaries in the plan. 

The fiduciary’s responsibilities include:

q Acting solely in the interest of the participants and their beneficiaries; 

q Acting for the exclusive purpose of providing benefits to workers participating 

in the plan and their beneficiaries, and 

defraying reasonable expenses of the 

plan; 

q Carrying out duties with the care, skill, 

prudence, and diligence of a prudent person familiar with such matters; 

q Following the plan documents; and 

q Diversifying plan investments. 

These are the responsibilities that fiduciaries need to keep in mind as they carry out 

their duties. The responsibility to be prudent 

covers a wide range of functions needed to 

operate a plan. And, since all these functions 

must be carried out in the same manner as a 

prudent person would, it may be in your best 

interest to consult experts in various fields, 

such as investments and accounting. 

In addition, for some functions, there are 

specific rules that help guide the fiduciary. 

For example, the deductions from employees’ paychecks for contribution to the plan 

must be deposited with the plan as soon 
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as reasonably possible, but no later than the 

15th business day of the month following 

the payday. If you can reasonably make the 

deposits in a shorter timeframe, you need to 

make the deposits at that time. 

For plans with fewer than 100 participants, 

salary reduction contributions deposited with 

the plan no later than the 7th business day

following withholding by the employer will 

be considered contributed in compliance with 

the law.

For all contributions, employee and employer 

(if any), the plan must designate a fiduciary, 

typically the trustee, to make sure that

contributions due to the plan are transmitted. 

If the plan and other documents are silent or 

ambiguous, the trustee generally has this

responsibility. As part of following the plan 

documents in operating your plan, the plan 

document will need to be updated from time 

to time for changes in the law.

Limiting Liability

With these responsibilities, there is also some 

potential liability. However, there are actions 

you can take to demonstrate that you carried 

out your responsibilities properly as well as 

ways to limit your liability. 

The fiduciary responsibilities cover the process used to carry out the plan functions 

rather than simply the end results. For 

example, if you or someone you hire makes 

the investment decisions for the plan, an 

investment does not have to be a “winner” 

if it was part of a prudent overall diversified 

investment portfolio for the plan. Since a 

fiduciary needs to carry out activities through 

a prudent process, you should document the 

decisionmaking process to demonstrate the 

rationale behind the decision at the time it 

was made. 

In addition to the steps above, there are 

other ways to limit potential liability. The 

plan can be set up to limit your liability for 

participants’ investment decisions when they 

exercise control of the investments in their 

accounts. For participants to have control, 

they must have sufficient information on the 

specifics of their investment options. You 

can also hire a service provider or providers 

to handle some or most of the fiduciary functions, setting up the agreement so that the 

person or entity then assumes liability. 

Hiring a Service Provider

Even if you do hire a financial institution 

or retirement plan professional to manage 

the whole plan, you retain some fiduciary 

responsibility for the decision to select and 

keep that person or entity as the plan’s 

service provider. Thus, you should document your selection process and monitor the 

services provided to determine if a change 

needs to be made. 

For a service contract or arrangement to be 

reasonable, service providers must provide 

certain information to you about the services

they will provide to your plan and all of the 

compensation they will receive. This information will assist you in understanding the 

services, assessing the reasonableness of 

the compensation (direct and indirect) and 

determining any conflicts of interest that may 

impact the service provider’s performance.

Some additional items to consider in selecting 

a plan service provider:

q Information about the firm itself: affiliations, financial condition, experience with 

401(k) plans, and assets under their control; 

q A description of business practices: how 

plan assets will be invested if the firm 

will manage plan investments or how 

participant investment directions will be 

handled; 

q Information about the quality of prospective providers: the identity, experience, 
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and qualifications of the professionals 

who will be handling the plan’s account; 

any recent litigation or enforcement action 

that has been taken against the firm; the 

firm’s experience or performance record; 

if the firm plans to work with any of its 

affiliates in handling the plan’s account; 

and whether the firm has fiduciary liability 

insurance. 

Once hired, these are additional actions to 

take when monitoring a service provider:

q Evaluate any notices received from the 

service provider about possible changes 

to their compensation and the other 

information they provided when hired 

(or when the contract or arrangement was 

renewed);

q Review the service provider’s 

performance; 

q Read any reports they provide; 

q Check actual fees charged; 

q Ask about policies and practices (such as 

trading, investment turnover, and proxy 

voting); and 

q Follow up on participant complaints. 

(For more information, see Understanding 

Retirement Plan Fees and Expenses at www.

dol.gov/ebsa. Go to “Fiduciary Education” 

under “Compliance Assistance” to access the 

publication.)

Providing Information in Participant-Directed Plans

When plans allow participants to direct their 

investments, fiduciaries need to take steps 

to regularly make participants aware of their 

rights and responsibilities under the plan 

related to directing their investments. This 

includes providing plan and investmentrelated information, including information 

about fees and expenses, that participants 

need to make informed decisions about the 

management of their individual accounts. 

Participants must receive the information 

before they can first direct their investment in 

the plan and annually thereafter. The investment-related information needs to be presented in a format, such as a chart, that allows 

for a comparison among the plan’s investment options. A model chart is available on 

www.dol.gov/ebsa. If you use information 

provided by a service provider that you rely 

on reasonably and in good faith, you will be 

protected from liability for the completeness 

and accuracy of the information.

Prohibited Transactions and Exemptions

There are certain transactions that are prohibited under the law to prevent dealings with 

parties that have certain connections to the 

plan, self-dealing, or conflicts of interest that 

could harm the plan. However, there are 

a number of exceptions under the law, and 

additional exemptions may be granted by the 

U.S. Department of Labor, where protections 

for the plan are in place in conducting the 

transactions.

One exemption allows the provision of 

investment advice to participants who direct 

the investments in their accounts. This 

applies to the buying, selling, or holding of 

an investment related to the advice as well as 

to the receipt of related fees and other compensation by a fiduciary adviser. Please check 

www.dol.gov/ebsa for more information.

Another exemption in the law permits you to 

offer loans to participants through your plan. 

If you do, the loan program must be carried 

out in such a way that the plan and all other 

participants are protected. Thus, the decision 

with respect to each loan request is treated as 

a plan investment and considered accordingly. 

Bonding

Persons handling plan funds or other plan 

property generally must be covered by a 

fidelity bond to protect the plan against 

losses resulting from fraud and dishonesty 

by those covered by the bond. 
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Disclosing Plan Information to Participants

Plan disclosure documents keep participants 

informed about the basics of plan operation, 

alert them to changes in the plan’s structure 

and operations, and provide them a chance to 

make decisions and take timely action about 

their accounts. 

The automatic enrollment notice details the 

plan’s automatic enrollment process and participant rights. The notice must specify the 

deferral percentage, the participant’s right to 

change that percentage or not to make automatic contributions, and the default investment. 

The notice for EACAs and QACAs is similar to 

that discussed under Notifying Employees

but does contain some additional required 

information. 

The participant generally must receive the initial notice at least 30 days, but not more than 

90 days, before eligibility to participate in the 

plan or the first investment. Subject to certain conditions, the notice may be provided, 

and an employee may be enrolled in the 

plan, on the first day of work.

An annual notice must be provided to participants and all eligible employees at least 30 

days, but not more than 90 days, prior to the 

beginning of each subsequent plan year.

The summary plan description (SPD) – 

the basic descriptive document — is a plainlanguage explanation of the plan and must 

be comprehensive enough to apprise participants of their rights and responsibilities under 

the plan. It also informs participants about 

the plan features and what to expect of the 

plan. 

Among other things, the SPD must include 

information about:

q When and how employees become eligible to participate in the automatic enrollment 401(k) plan; 

q The contributions to the plan; 

q How long it takes to become vested; 

q When employees are eligible to receive 

their benefits; 

q How to file a claim for those benefits; and 

q Basic rights and responsibilities participants have under the Federal retirement 

law, the Employee Retirement Income 

Security Act (ERISA). 

The SPD should include an explanation about 

the administrative expenses that will be paid 

by the plan. This document must be given to 

participants when they join the plan and to 

beneficiaries when they first receive benefits. 

SPDs must also be redistributed periodically 

during the life of the plan. 

A summary of material modification 

(SMM) apprises participants of changes made 

to the plan or to the information required to 

be in the SPD. The SMM or an updated SPD 

must be automatically furnished to participants within a specified number of days after 

the change. 

An individual benefit statement (IBS) 

shows the total plan benefits earned by a 

participant, vested benefits, the value of 

each investment in the account, information 

describing the ability to direct investments, 

and (for plans with participant direction) an 

explanation of the importance of a diversified 

portfolio. Plans that provide for participantdirected accounts must furnish individual 

benefit statements quarterly. Plans that do not 

provide for participant direction must furnish 

statements annually.

As noted above, for plans that allow participants to direct the investments in their 

accounts, plan and investment information,

including information about fees and expenses, must be provided to participants before 

they can first direct investments and periodi-
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cally thereafter - primarily on an annual basis 

with information on the fees and expenses 

actually paid provided at least quarterly. The 

initial plan-related information may be distributed as part of the SPD provided when a 

participant joins the plan as long as it is provided before the participant can first direct 

investments. The information provided

quarterly may be included with the IBS.

A summary annual report (SAR) is a 

narrative of the plan’s annual return/report, 

the Form 5500, filed with the Federal 

Government (see Reporting to Government 

Agencies for more information). It must be 

furnished annually to participants. 

Reporting to Government Agencies

In addition to the disclosure documents 

that provide information to participants, 

plans must also report certain information to 

Government entities. 

Form 5500 Annual Return/Report of Employee 

Benefit Plans

Plans are required to file an annual return/

report with the Federal Government, in 

which information about the plan and its 

operation is disclosed to the IRS and the U.S. 

Department of Labor. Plans that must file the 

Form 5500 or Form 5500-SF must do so electronically. These returns/reports are made 

available to the public.

Depending on the number and type of participants covered, most automatic enrollment 

401(k) plans must file one of the following 

forms:

q Form 5500, Annual Return/Report of 

Employee Benefit Plan, 

q Form 5500-SF, Short Form Annual 

Return/Report of Small Employee Benefit 

Plan, or

q Form 5500-EZ, Annual Return of 

One-Participant (Owners and Their Spouses) 

Retirement Plan 

Most one-participant plans (sole proprietor

and partnership plans) with total assets of 

$250,000 or less are exempt from the annual 

filing requirement. However, regardless of 

the value of the plan’s assets, a final return/

report must be filed when a plan is terminated. 

Form 1099-R

Form 1099-R, Distributions From Pensions, 

Annuities, Retirement or Profit-Sharing Plans, 

IRAs, Insurance Contracts, etc., is used to 

report distributions (including rollovers) from 

a retirement plan. It is given to both the IRS 

and recipients of distributions from the plan 

during the year. 

Form 8955-SSA

Form 8955-SSA, Annual Registration 

Statement Identifying Separated Participants 

with Deferred Vested Benefits, is used to report 

separated participants with deferred vested 

benefits. It is filed with the IRS. The information reported is generally given to the Social 

Security Administration who provides the 

reported information to the participants when 

they file for Social Security benefits. 

Permissible Withdrawals of Automatic 

Contributions 

If an EACA allows employees to withdraw 

their automatic contributions within 90 days 

of the first contribution, then those amounts, 

distributed with earnings, are treated as taxable income (unless Roth contributions) in the 

year distributed. They are reported on Form 

1099-R and are not subject to the 10 percent 

early withdrawal tax.

Distributing Plan Benefits

Benefits in an automatic enrollment 401(k) 

plan are dependent on a participant’s account 

balance at the time of distribution. 

When participants are eligible to receive a 

distribution, they typically can elect to:
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q Take a lump sum distribution of their 

account; 

q Roll over their account to an IRA or 

another employer’s retirement plan; or 

q Take periodic distributions. 

More employers are offering annuity or other 

lifetime income distribution options in their 

defined contribution plans for employees who 

want to ensure that they do not outlive their 

retirement savings. You may want to look into 

what those plans are doing.

TERMINATING AN AUTOMATIC 

ENROLLMENT 401(k) PLAN

Automatic enrollment 401(k) plans must be 

established with the intention of being continued indefinitely. However, business needs 

may require that employers terminate their 

plans. For example, you may want to establish another type of retirement plan instead of 

the automatic enrollment 401(k) plan.

Typically, the process of terminating an automatic enrollment 401(k) plan includes amending the plan document, distributing all assets, 

and filing a final Form 5500. You must also 

notify your employees that the plan will be 

discontinued. Check with your plan’s 

financial institution or a retirement plan professional to see what further action is necessary to terminate your automatic enrollment 

401(k) plan. 

COMPLIANCE

Even with the best intentions, mistakes in 

plan operation can still happen. The U.S. 

Department of Labor and IRS have correction 

programs to help automatic enrollment 401(k) 

plan sponsors correct plan errors, protect 

participants and keep the plan’s tax benefits. 

These programs are structured to encourage 

early correction of the errors. Having an 

ongoing review program makes it easier to 

spot and correct mistakes in plan operations. 

See the Resources section for further information. 

AN AUTOMATIC ENROLLMENT 

401(k) PLAN CHECKLIST

Now that you are ready to get started, 

here are some tips:

q	 1. Have you adopted a written 401(k)

 plan that provides for automatic

 enrollment?

q	 2. Have you decided to hire a financial

 institution or retirement plan profes- 

 sional to help you with setting up and

 running the plan?

q	 3. Have you decided upon the percent-

 age of compensation for the automatic

 employee contributions? Have you

 considered the level of employer contri-

 butions, whether optional or required?

q	 4. Have you decided to set up your plan

 as an EACA or a QACA? 

q	 5. In selecting a default investment, have

 you decided to meet the conditions for

 fiduciary liability relief for this invest-

 ment? 

q	 6. Have you developed a recordkeeping

 system that includes tracking employee

 elections for those opting out of the

 plan and for those employees who

 elect a different percentage? 

q	 7. Have you provided or are you prepared

 to provide the initial notice to employ-

 ees in advance of their first automatic

 contributions? Are you prepared to 

 satisfy the annual notice requirements?

q	 8. Are you familiar with the fiduciary

 responsibilities? 

q	 9. Are you prepared to monitor the plan’s

 service providers and investments? 

q	 10. Are you familiar with the reporting and

 disclosure requirements of an automatic

 enrollment 401(k) plan?

For help in establishing and operating an automatic enrollment 401(k) plan, you may want to talk to a retirement 

plan professional or a representative of a financial institution that offers retirement plans – and take advantage of 

the help available in the following Resources section.
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employees an opportunity to save for 

retirement.

q	 Profit Sharing Plans for Small Businesses,

Publication 4806, describes a flexible way 

for businesses to help employees save for 

retirement.

q	 SEP Retirement Plans for Small Businesses, 

Publication 4333, describes a low-cost 

retirement savings option for small businesses.

q	 SIMPLE IRA Plans for Small Businesses, 

Publication 4334, describes a type of 

retirement plan designed especially for 

small businesses.

And for business owners with a plan:

q	 Retirement Plan Correction Programs, 

Publication 4224, provides a brief 

description of the IRS and DOL voluntary

 correction programs. 

Order From:

DOL: Electronically at www.askebsa.dol.

gov or by calling 866-444-3272

IRS: 800-TAX-FORM (829-3676)

Related materials available from DOL:

For more information on automatic 

enrollment: 

Field Assistance Bulletin 2008-03 addressing 

frequently asked questions on QDIAs

For small businesses:

q	 Understanding Retirement Plan Fees and 

Expenses

q	 Meeting Your Fiduciary Responsibilities

q	 Selecting an Auditor for Your Employee 

Benefit Plan

q	 Reporting and Disclosure Guide for 

Employee Benefit Plans 

q	 Tips for Selecting and Monitoring Service 

Providers for Your Employee Benefit Plan

RESOURCES

The U.S. Department of Labor’s (DOL’s) 

Employee Benefits Security Administration and 

the IRS feature this publication and additional 

information on retirement plans on their 

websites:

www.dol.gov/ebsa — Go to the Saving Matters 

website at www.savingsmatters.dol.gov or 

“Publications and Reports” for additional information to help you understand and operate 

your automatic enrollment 401(k) plan. This 

website also has information to help your 

employees understand the importance of saving 

for retirement through an employer-sponsored 

plan.

www.irs.gov/retirement — Go to “Plan 

Sponsor.” This website is filled with plain-language information that will help you maintain 

your automatic enrollment 401(k) plan properly. 

All the IRS forms and publications mentioned in 

this booklet are available here.

In addition, the following jointly developed 

publications are available on the DOL and IRS 

websites and can be ordered through the tollfree numbers listed below:

q Choosing a Retirement Solution for Your 

Small Business, Publication 3998, provides 

an overview of retirement plans available 

to small businesses.

q	 401(k) Plans for Small Businesses, Publication 4222, provides detailed information 

regarding the establishment and operation 

of a 401(k) plan.

q	 Adding Automatic Enrollment to Your 

 401(k) Plan, Publication 4721, explains

 how to add automatic enrollment to your 

 existing 401(k) plan.

q	 Payroll Deduction IRAs for Small Businesses, 

Publication 4587, describes an arrangement 

that is an easy way for businesses to give 
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In addition, DOL sponsors an interactive 

website - the Small Business Advisor, available 

at www.dol.gov/elaws/pwbaplan.htm. 

This encourages small business owners to 

choose the appropriate retirement plan for 

their business and provide resources on 

maintaining plans.

For employees:

q	 A Look at 401(k) Plan Fees 

q	 What You Should Know About Your 

Retirement Plan (also in Spanish)

q	 Savings Fitness...A Guide to Your Money 

and Your Financial Future (also in Spanish)

q	 Taking the Mystery Out of Retirement 

Planning (also in Spanish)

q	 Top 10 Ways to Prepare for Retirement 

(also in Spanish)

q	 Women and Retirement Savings 

(also in Spanish)

To view these publications, go to 

www.dol.gov/ebsa and click on “Publications 

and Reports.” To order publications or request 

assistance from a benefits advisor, contact 

EBSA electronically at www.askebsa.dol.gov

or call toll free 866-444-3272.

 

Related materials available from the IRS:

q	 The IRS Retirement Plan Products Guide,

Publication 4460.

q	 Lots of Benefits, Publication 4118, 

 discusses the benefits of sponsoring 

 and participating in a retirement plan.

q	 Have you had your Check-up this year? 

for Retirement Plans, Publication 3066, 

encourages employers to perform a 

periodic “check-up” of their retirement 

plans through the use of a checklist, 

and how to initiate any necessary 

 corrective action.

November 2013

q	 401(k) Plan Checklist, Publication 4531, a 

tool to help you keep your plan in compliance with many of the important tax 

rules.

q	 Designated Roth Accounts under 401(k),

 403(b), or governmental 457(b) plans,

 Publication 4530, discusses this popular

 feature found in many 401(k), 403(b) and 

 governmental 457(b) plans.

q	 Retirement Plans for Small Business (SEP, 

SIMPLE, and Qualified Plans), Publication 

560.

To view these related publications, 

visit the Retirement Plans Web page at 

www.irs.gov/retirement and click on 

“Forms & Publications” in the left pane.
U.S. Department of Labor

Publication 4674 (Rev. 11-2013) Catalog Number 51461H 

Department of the Treasury Internal Revenue Service

www.irs.gov