 NEWSLETTERS Volume 8, Issue 1 .................... June 2008 Updated Automatic Enrollment Rules The Pension Protection Act of 2006 was signed into law on August 17, 2006. This law made changes to automatic contribution arrangements (ACA), also known as automatic enrollment. With the recent release of proposed automatic enrollment regulations the administration of this feature has been some what clarified. Plan sponsors can select the specific participants that will be impacted by the adopted ACA: • New participants only. • New participants and existing participants not deferring up to the stated ACA percent. • All participants new and existing. Many prototype documents, including Administrative Retirement Services, Inc. document, support these choices. Effective January 1, 2008, an additional type of ACA called an Eligible Automatic Contribution Arrangement (EACA) became available. EACAs are ACAs that provide plan participants a 90-day opt-out window and extend the time plan sponsors must process nondiscrimination testing refunds to within 6 months after the end of the plan year rather than within 2 ˝ months required by traditional 401(k) plan to avoid the 10% IRS excise tax which is imposed when excess contributions are refunded after these time frames. Prop. Treas. Reg. §1.414(w)-1(b)(2) says that the stated percent of an EACA must be “a uniform percentage of compensation.” Therefore, it appears to limit an EACA to any group of participants less than all participants would violate the EACA uniformity requirement. If the plan did not include all existing participants who never filed a deferral contribution election, then the stated EACA percent would not be a “uniform percentage of compensation” because in effect, some employees would have a zero percent, while others would have the stated EACA percent. There are only two categories of participants a plan can exclude from the EACA: • Those who have made an affirmative election after the effective date of the EACA, including an election of zero. • Those who are already deferring more than the stated EACA percent (either because of a previous affirmative election or because the plan already had an automatic enrollment feature set at a higher percentage). If your plan is currently
adopting an EACA and does not apply the EACA to all participants, your plan may
be impacted by the proposed regulations. Please contact Administrative
Retirement Services, Inc. if you would like to discuss EACA in more detail or
add the automatic enrollment feature to your plan. © Administrative Retirement Services, Inc. 2008 Published by Administrative Retirement Services, Inc., Copyright 2001 by Administrative Retirement Services, Inc. Reproduction in whole or in part is prohibited except by written permission. All rights are reserved. Information has been obtained by Administrative Retirement Services, Inc. from sources believed to be reliable. However, because of the possibility of human or mechanical error by our sources, Administrative Retirement Services, Inc. or others, Administrative Retirement Services, Inc. does not guarantee the accuracy, adequacy, or completeness of any information and is not responsible for any errors or omissions or the result obtained from the use of such information. Readers should seek specific advice before acting with regard to the subjects mentioned here. |