Auto Enroll Final Regs — Part Two
Rev. 05/22/09; E-mail Alert 2009-7

Eligible Automatic Contribution Arrangement under §414(w)

1. Background
The proposed regulations provided that an eligible automatic contribution arrangement (EACA) is an ACA under an applicable employer plan that applies to each “eligible employee.” An eligible employee was defined as an employee who is eligible to make a CODA election under the plan. Therefore, under the proposed regulations, an employer was required to apply automatic enrollment to all current and new employees eligible to make a deferral election under the applicable plan who did not have an affirmative election in effect.

Commentators requested flexibility in the implementation of an EACA by permitting an employer to apply automatic enrollment only to those employees who are hired on or after the effective date of the EACA.

2. Employees specified by the plan as covered by the EACA
The final regulations modify the above rule to provide that the employees who must be subject to the automatic enrollment provisions under an EACA are only those employees who are specified in the plan as being covered employees under the EACA. Thus, automatic enrollment under an EACA need not apply to all employees eligible to make a deferral election under the applicable plan, but only to those employees who are covered by the EACA.

The final regulations provide that the plan document must specify the employees who are covered under the EACA and must state whether an employee who makes an affirmative election remains covered under the EAC.

• Auto enrollment notice under 414(w) is only required to be sent to employees covered by the EACA.

Under section 414(w)(4), the notice regarding an employee’s rights and obligations under the arrangement need only be provided to those employees who are covered employees under the EACA as set forth in the plan.

If a plan provides that an employee who makes an affirmative election is no longer a covered employee under the EACA, then the employee is not required to receive the notice after he or she makes an affirmative election.

1. 6-month period for ADP/ACP refund without penalty only available to plans where all eligible employees are covered by the EACA for entire plan year.

With respect to the correction of excess contributions for a plan year beginning on or after January 1, 2010, a plan that contains an EACA is entitled to the extended 6-month period for correcting excess contributions and excess aggregate contributions without incurring an excise tax under section 4979, only if all eligible NHCEs and eligible HCEs are covered employees under the EACA for the entire plan year (or the portion of the plan year that the employees are eligible employees).

If EACA covers less than all eligible employees under plan, the employer will be unable to take advantage of the extension under section 4979.

To be continued...

Bill Grossman, ERPA, QPA

For more information, click here to check out our Automatic Enrollment eSeminar which has been completely updated for the final regulations and WRERA.