Automatic Enrollment Implementation
Is automatic enrollment permissible under law?
Partially
Explanation:
Employees participating in the state plan are automatically enrolled. However, public employees of other political subdivisions are subject to wage deferral laws that prevent the implementation of automatic enrollment.
Relevant State Laws – Tex. Labor Code Ann. §61.018, §609.5025, § 609.007
“An employer may not withhold or divert any part of an employee’s wages unless the employer: (1) is ordered to do so by a court of competent jurisdiction; (2) is authorized to do so by state or federal law; or (3) has written authorization from the employee to deduct part of the wages for a lawful purpose.” Tex. Labor Code Ann. §61.018.
TX passed a law in 2007, requiring new state employees to be automatically enrolled in the state-run 401(k) plan (H.B. 957). The law states, in pertinent part, as follows: “ AUTOMATIC PARTICIPATION; DEFAULT INVESTMENT PRODUCT. (a) This section applies only to an employee of a state agency participating in a 401(k) plan. (b)An employee participates in a 401(k) plan unless the employee affirmatively elects not to participate in the plan. Notwithstanding Sections 609.007(b) and (c), an employee is not required to affirmatively contract for and consent to participation in a plan under this section; (c) An employee participating in a 401(k) plan under this section makes a contribution of one percent of the compensation earned by the employee to a default investment product selected by the board of trustees based on the criteria established under Section 609.505(d) and the rules adopted under Subsection (f). The contribution is made by automatic payroll deduction…SECTION 4 Section 609.5025, Government Code, as added by this Act, applies only to an officer or employee of a state agency who initially takes office or begins employment on or after January 1, 2008. Tex.” Gov’t Code Ann. 609.5025.
“[a] political subdivision may contract with an employee of the political subdivision for the deferment of any part of the employee’s compensation.” and “[e]xcept as provided by Section 609.5025, to participate in a deferred compensation plan, an employee must consent in the contract to automatic payroll deductions in an amount equal to the deferred amount.” Tex. Gov’t Code Ann. § 609.007