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ACAs & EACAs In SIMPLEs & SARSEPS


jevd
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I can’t tie in the reference in 1.414(w)-1 (e)(1) (iv) & (v) (Final Regs issued 2-24-09) to SARSEPS & SIMPLE IRAS back to a section that establishes the ability of setting up ACAs, or EACAs for those plans. Do the definitions apply to the entire set of regs or just to section 414(w). I thought I was pretty good at interpreting these cross references but it seems something is lacking either in the regs or my understanding.

Does anyone have a specific site or cite I can refer to as a basis to allow ACAs or EACAs in SARSEPs or SIMPLEs.

Thanks

This post has been edited by jevd: Feb 26 2009, 05:02 PM

Moved to correct Forum

Sorry.

JEVD

Making the complex understandable.

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I think the general rule that allows a "negative election" (later called "auto enrollment", now called "ACA") to a 401(k) also allows it with regard to any elective deferral arrangement (including, I believe, cafe plans). It does not come from a statutory or regulatory provision (except see Treas. Reg. Section 1.401(k)-1(a)(3)(ii), which memorialzies the earlier position the IRS took). IRC Section 414(w) simply allows the return of certain auto enrollment $$ if the auto enrollment meets specific requirements and, in that sense, it is completely independent of the QACA regs.

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I think the general rule that allows a "negative election" (later called "auto enrollment", now called "ACA") to a 401(k) also allows it with regard to any elective deferral arrangement (including, I believe, cafe plans). It does not come from a statutory or regulatory provision (except see Treas. Reg. Section 1.401(k)-1(a)(3)(ii), which memorialzies the earlier position the IRS took). IRC Section 414(w) simply allows the return of certain auto enrollment $$ if the auto enrollment meets specific requirements and, in that sense, it is completely independent of the QACA regs.

I am having a problem as to how the employer would establish the SIMPLE IRA or SARSEP account for the employee if the employee failed to do so. Where would the contribution be made. There is regulatory basis to establish an IRA for employer SEP purposes for qualification but no other authority for SIMPLE IRAs or SARSEPS.

JEVD

Making the complex understandable.

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which memorialzies the earlier position the IRS took

Are you suggesting that Announcement 2000-60 is the guiding light in SARSEP and SIMPLE-IRA land?

Surely something more would be needed to go out an establish an ACA with a QDI in a SARSEP or SIMPLE IRA.

What are we to hang our hats on (the Sieve)? :blink:

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how about

the preamble which says

However, these regulations do not reflect: (1) the change made by

section 109(b)(3) of WRERA that eliminates the requirement to include gap period

income for a distribution of an excess deferral under section 402(g); (2) the additional

time to correct excess contributions under a SARSEP that includes an EACA; (3) the

tax treatment of excess contributions and earnings thereon under a SARSEP; and (4)

guidance on SIMPLE IRA plans that include an EACA.

or under the definitions section under 1.414(w)....:

(e) Definitions. Unless indicated otherwise, the following definitions apply for

purposes of section 414(w) and this section.

(1) Applicable employer plan. An applicable employer plan means a plan that--

(i) Is qualified under section 401(a);

(ii) Satisfies the requirements of section 403(b);

(iii) Is a section 457(b) eligible governmental plan described in §1.457-2(f);

(iv) Is a simplified employee pension the terms of which provide for a salary

reduction arrangement described in section 408(k)(6); or

(v) Is a SIMPLE described in section 408(p).

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how about

the preamble which says

However, these regulations do not reflect: (1) the change made by

section 109(b)(3) of WRERA that eliminates the requirement to include gap period

income for a distribution of an excess deferral under section 402(g); (2) the additional

time to correct excess contributions under a SARSEP that includes an EACA; (3) the

tax treatment of excess contributions and earnings thereon under a SARSEP; and (4)

guidance on SIMPLE IRA plans that include an EACA.

or under the definitions section under 1.414(w)....:

(e) Definitions. Unless indicated otherwise, the following definitions apply for

purposes of section 414(w) and this section.

(1) Applicable employer plan. An applicable employer plan means a plan that--

(i) Is qualified under section 401(a);

(ii) Satisfies the requirements of section 403(b);

(iii) Is a section 457(b) eligible governmental plan described in §1.457-2(f);

(iv) Is a simplified employee pension the terms of which provide for a salary

reduction arrangement described in section 408(k)(6); or

(v) Is a SIMPLE described in section 408(p).

Where is the authority for an EACA in a SARSEP or SIMPLE IRA? My original post.

JEVD

Making the complex understandable.

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Guest Sieve

Tom --

I think the OP wants some statutory or other authority (other than 414(w) regs or preambles) which permits a negative election for a SARSEP or SIMPLE, since IRC Section 414(w)(5) does not include either of those as eligible for the 90-day auto enorllment return.

I took a shot (i.e., auto enrollment is permitted with any deferral arrangement), but Gary doesn't think that works. What do you think?

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Sieve -

if I take a shot, you (being the fine goalie you are) will just kick it back and before I get a chance for a rebound, I will probably be checked into the boards. :lol:

WRERA modified the code (definition of applicable plan)

(5) Section 414(w)(5) of the 1986 Code is

9 amended by striking ‘‘and’’ at the end of subpara

10graph (B), by striking the period at the end of sub

11 paragraph © and inserting a comma, and by add

12 ing at the end the following:

13 ‘‘(D) a simplified employee pension the

14 terms of which provide for a salary reduction

15 arrangement described in section 408(k)(6),

16 and

17 ‘‘(E) a simple retirement account (as de

18fined in section 408(p)).’’.

found that because the preamble for automatic enrollment says

Section 414(w)(5), as amended by section 109(b)(5) of WRERA, defines an

applicable employer plan as a trust described in section 401(a) that is exempt from tax

under section 501(a), a plan described in section 403(b), a section 457(b) plan that is

maintained by a governmental employer described in section 457(e)(1)(A), a simplified

employee pension the terms of which provide for a salary reduction arrangement

described in section 408(k)(6), or a SIMPLE described in section 408(p).

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but Gary doesn't think that works

This is not entirely true. I kind of agree with you, but not necessarily for the same reasons

Just because we can't find any authority, does not mean an authority does't exits. The fact that some authority may not exist, does not mean that any is needed. Most SEP-IRA and SIMPLE-IRA accounts, when established, have a default investment (e.g., money market fund). The account is part of the employer's SARSEP or SIMPLE-IRA plan--and it is not prohibited.

We may not find anything, or conclude that 414(w) is a sufficient grant of authority (assuming any is needed). Perhaps all that is needed is for the ACA not violate any of the existing rules and comply with DOL plan description regulations. I imagine, the IRS will provide some guidance, perhaps a new LRM. The IRS can be restrictive in both model and prototype documents. Hopefully, the IRS will not require an individually designed plan to provide an ACA.

Do we have or need any authority? [MCPI (my current position is), 414(w) provisions would be needed (and now allowed), but 414(w) is not "the" grant of authority, it already existed (or wasn't needed). IOW, an individually designed SARSEP or SIMPLE IRA plan could have provided for ACAs and the PLR would have been (with some negotiation) approved. Whether the plan descriptions and notices would comply with DOL requirements would still be an issue.]

What would any IRS or DOL issued ACA rules probably provide?

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Guest Sieve

Tom -- You scored . . . !! (With a goal and an assist in this thread, you're just a fight away from a Gordie Howe hat trick!!) You've clearly shown me why I can't put off reading the final ACA regs any longer.

Gary -- I agree with you that we really don't need any further authority from what we already have for a plain vanilla negative-election (ACA) for any kind of deferral arrangement, and that 414(w) is not authority for the negative election itself. I still would like to see regs on plain vanilla ACAs and auto escalation (i.e., how negative elections really work, whether or not they are intended to be EACAs). For example, can an ACA pop-up more than once a year, so a participant can be forced to elect out of a renewed ACA continually (i.e., can we wear the employee down by getting multiple bites at the negative election apple)? Can an individual who waives auto escalation be re-enrolled? How regualrly can auto escalation occur (i.e., can there be esclation on a quartlery basis)? Must all auto escalation/auto enrollment be at the same time (i.e., can escalation be based on when you enter the plan, so some escalate on Jan. 1 and others on July 1)? Etc., etc. . . .

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I do not disagree with you. I belive the ACAs have always ben allowed, but that we have never had any guidance to rely on that covers the issues. Actually, I was trying to goad you into doing more research, as I knew you would :D . Thanks for being a valuable member on this board.

Do you agree that parts of the "eligible automatic contribution arrangements" (EACAs) and/or "qualified automatic contribution arrangements" (QACAa) might be appropriate in SEP land -- to resolve such things as top-heavy contributions, requiring a minimum percentage, and so on?

Needless to say, not much can be done at this time for a SS or Simple-IRA plan. I will try to find out more.

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