Question: Has the new retirement savings law gone into effect? Will it change my IRA with you?

A BuyandHolder

Answer:

Dear BuyandHolder,

Perfect timing -- the new ruling went into effect in December. However, it does not relate to IRAs. It only involves 401(k), 403(b) and 457 retirement plans. If you, or someone in your family has one of these plans, here's what you should know about the Pension Protection Act signed into law by President Bush in late 2007.

The new ruling addresses the fact that an estimated one-third of all employees do not participate in their company's 401(k) retirement plan. The law makes it less complicated for companies to automatically enroll their employees in such plans -- in an effort to boost the amount of money Americans put aside for their retirement years.

The automatic enrollment is aimed at new employees or existing employees who have not enrolled in the company's 401(k). These employees will receive written notification that the company is participating in automatic enrollment. (Companies are not legally required to do so.) If the employee does not respond, actively declining enrollment, then automatic enrollment will kick in.

A participating company must set employee contributions levels of at least 3% of the employee's compensation annually, up to a minimum of 6% per year by the fourth year. And, companies are required to match the employee's contribution at a rate of at least 2% a year but not over 3.5% a year. They must also provide full vesting for employees within two years.

The Employee's Options

As an employee, you have up to 90 days to opt out of automatic enrollment. If you decide to opt out and if any involuntary contributions were made during the time period before opting out, the contributions will be "unwound" and returned without penalty.

Note: It's important to realize that if the company does not hear from an employee one way or another, then automatic enrollment will swing into action.

On the other hand, if you opt to stay in, you will then receive a second notice, telling you just how the company is investing a portion of your paycheck. This particular notice must be sent to the employee every year.

The Company's Options...

The company may automatically enroll participants in a variety of investments that should become more conservative as the employee's retirement date approaches.

Or, the company can send employees to a professionally managed account or investment service that will provide an age-appropriate asset mix.

Under the new rules, participants do not have to leave their money in investments that the company has picked. The employee may, in fact, move his or her money out of company-selected investments at least quarterly, although there are fees for doing so.

Bottom Line

The thinking behind this new automatic enrollment program is to help employees get over the barrier of inertia regarding how much to invest and what to invest in.

For Further Details: www.401k-easy.com

Good luck!