Law revises 401(k) rules

Sweeping pension legislation signed by President Bush in August revised many aspects of existing pension rules. Here are the major changes for 401(k) plans:

This new law pre-empts any state garnishment law and bans withholding employee wages without their permission.

Employers must give employees notice that they are being automatically enrolled in the company's 401(k) plan and that contributions made will be invested in an employer-approved account. Employees must be told they have the right to opt out of this arrangement, and they have the right to change the contribution rate and where contributions are invested.

The law also provides an automatic safe harbor for non-discrimination testing if the employer follows these contribution steps: New enrollees must contribute 3% of pay during the first year, and contributions must increase one percentage point annually until reaching 6% in the fourth year. Plus, employers must make the following match: 100% on first 1% of pay deferred and 50% on deferrals between 1% and 6%.