QACA Plan Amendment Question
Rev. 09/12/07, E-mail Alert 2007-12

Click here for updated information based on the Automatic Enrollment Final Regs, which were issued February 24, 2009.

Does a plan document have to be amended to offer a qualified automatic contribution arrangement (QACA) in 2008?

According to the Pension Protection Act (PPA), plans will not have to be amended to add the provisions from PPA until the end of the 2009 plan year. As is the custom, governmental and collective bargaining plans will have two additional years to amend.

Mandatory PPA provisions, such as a top heavy vesting schedule for all employer contributions made for plan years 2007 and thereafter, would not need any action by the employer, as this is required of all plans. However, to be on the safe side, for the employer to utilize an optional provision, a board resolution should be used to implement the provision. The concern that the IRS might require an interim PPA amendment ended with IRS Rev. Proc. 2007-44, in which the IRS confirmed that no PPA amendments, either required or discretionary, are required before the 2009 plan year.

Thus, to start the QACA for 2008, the employer can merely adopt a board resolution.

Note that the McKay Hochman basic plan document amendment for the final 401(k) and (m) regulations (which we recommended that all plans incorporate by 12-31-06) already contains an automatic enrollment escalator clause which satisfies the contribution requirements of a QACA.

3. Article IV entitled “EMPLOYEE CONTRIBUTIONS” is further amended by the addition of a new subparagraph 4.9(e) entitled “Automatic Enrollment” which shall read as follows:

"(e) An Employer who has adopted the automatic enrollment provision may by administrative policy increase the default automatic amount each year of employee participation. Unless the Employer elects a different incremental amount, the default amount shall be no less than 3% in the first year of a Participant's participation in the plan increasing to no less than 4% in the second year, no less than 5% in the third year and no less than 6% in all subsequent years."