Eligible Automatic Contribution Arrangement, continued

B. Uniformity Requirement

1.   EACA uniform default percentage may include QACA exception
An EACA must provide that the default elective contribution is a uniform percentage of compensation. The exceptions to the uniformity requirement for a QACA also applied to an EACA (without regard to whether the arrangement was intended to be a QACA).

2.   Multiemployer or Multiple Employer Issue
Commentators requested easing of the uniformity requirement for a multiemployer plan or a multiple employer plan, or if the sponsor wants to have different default contributions for collectively bargained and non-collectively bargained employees. The final regulations do not specifically permit this.

• These plan sponsors can accomplish a similar goal by establishing separate EACAs for each of these separate groups.
• To address the possibility that a plan may contain more than one EACA, the final regulations provide that the requirement that the default elective contributions under an EACA be a uniform percentage of compensation is applied by aggregating all automatic contribution arrangements within the plan that are intended to be EACAs.
• For this purpose, in the case of a plan subject to section 410(b), the definition of plan is determined after applying the disaggregation rules of §1.401(k)-1(b)(4). Thus, a plan that is subject to the rules of section 410(b) is permitted to provide for separate EACAs for different groups of collectively bargained employees or different employers in a multiple employer plan with a different default percentage for each EACA, but such a plan could not have different default percentages apply to different groups of employees that are in the same plan after application of the disaggregation rules of §1.401(k)-1(b)(4).

C. Mid-year Implementation of an EACA Not Permitted

1. Safe harbor Notice Timing Requirement
Section 401(k)(12)(D) contains the safe harbor 401(k) notice requirement. It requires that the notice be provided “within a reasonable period before any year.” The final regulations under section 401(k)(12) provide that the notice must be provided within a reasonable period of time before the plan year (or, in the first year that the employee becomes eligible, within a reasonable period of time before the employee becomes eligible). The final regulations further provide that whether this timing requirement is satisfied is based upon all of the relevant facts and circumstances, and that the timing requirement is deemed to be satisfied if the notice is given at least 30 days (and no more than 90 days) before the beginning of each plan year. In the case of an employee who becomes eligible after the 90th day before the beginning of the plan year, the timing requirement is deemed to be satisfied if the notice is provided no more than 90 days before the employee becomes eligible for the cash or deferred arrangement (and no later than the date the employee becomes eligible).

2. Timing of QACA and EACA Notices
Section 401(k)(13)(E), which contains the notice requirements applicable to a QACA, and section 414(w)(4), which contains the notice requirements applicable to an EACA, each require that the notice be provided “within a reasonable period before each plan year.” The proposed regulations interpreted these provisions in a manner consistent with the interpretation in the final regulations under section 401(k)(12) of the almost identical language in that section, including the requirement that the notice be provided within a reasonable period of time before each plan year, except that, for individuals who become eligible employees during the plan year, the notice need only be provided within a reasonable period before the employee becomes an eligible employee.

3. Based on timing of notices, EACA may not start mid-year on an existing 401(k) plan
Commentators suggested that the statutory requirement to provide notice before the start of each plan year should not preclude starting an EACA in the middle of the plan year of an existing cash or deferred arrangement that is not an EACA, if notice is provided to each eligible employee within a reasonable period of time before the employee becomes eligible for the arrangement.

The final regulations do not adopt this suggestion. Instead, the final regulations generally retain the rule in the proposed regulations, which is consistent with the statutory requirements of section 414(w)(4) and with the interpretation of the identical language in section 401(k)(13) and the almost identical language in section 401(k)(12).

• Individuals who first become covered under an ACA as a result of a change in employment status, are the same as individuals who first become eligible to make a CODA election for purposes of the notice timing requirements.

4. Notice timing for newly eligible employees
If it is not practicable for the notice to be provided on or before the date specified in the plan that an employee becomes eligible, the notice will be treated as provided timely, if provided as soon as practicable after that date, and the employee is permitted to elect to defer from all types of compensation that may be deferred under the plan earned beginning on that date.

To Be Continued...

Bill Grossman, ERPA, QPA

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