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Frontier -- Your Money
Paternalism Pays Off
Socking money away in a 401(k) plan is about to get easier for entrepreneurs. That's because the feds have carved a shortcut around "discrimination tests" that trip up many small companies.
Under the old rules, the highest-paid employees (which usually include the owner) were unable to make a full contribution to a 401(k) plan unless a certain percentage of lower-paid employees also participated. The goal was to encourage employers to offer a plan that was attractive to everyone. But in practice, low-paid employees proved reluctant to sign up.
The solution: automatic enrollment. Instead of persuading people to sign up, you can simply enroll all your workers in an IRS-approved plan and start making deductions on their behalf--unless they specifically opt out. Few do. This all but ensures you'll pass the regulatory test so you can max out your own account.
Paternalistic? Probably. Selfish? Maybe. But Treasury Secretary Lawrence Summers prefers to call the change in the rule "a positive presumption in favor of saving."By Rick Green