403b auto enroll formula

[Santo Gold]

Can a plan sponsor with a 403b have an automatic enrollment feature where the match is 50% up to 10% of pay, all 100% vested?  What limitation would there need to be as far as the initial defaulted employee contribution?

Thank you

[MWeddell]

Yes, this is permitted.

I don't know that there are any limitations on the initial defaulted employee deferrals.  I suppose if your auto enrollment isn't uniform, then you would jeopardize your preemption of state wage withholding laws.

[Patricia Neal Jensen]

I have seen auto-enrollment default numbers from 4% (and lower) to as high as 10%.  I do not believe there is a maximum prescribed by IRS or DOL at this time.  The plan sponsor would have to weigh the benefit of assisting employees saving for retirement with the possibility of irritating employees by setting that number "too" high.  I think The Principal's own plan (401(k)) uses 8 or 10%.  Also important with a 403(b) is universal availability.  Employees are usually eligible to defer their own money immediately with the first payroll after hire.  Look at your plan document, but I have seen a 30 day wait before implementation of auto enrollment in 403(b)'s and have experienced a vendor's refusal to implement auto-enrollment (they were mailing packets and considering other tasks involved) for a 403(b)  because the timing on initial entry after hire was too tight for them to feel comfortable.  It is, as with many of these things, critical to read the plan document and make sure it is followed or written correctly and in a manner that can be administered.

Good luck!  Patricia

[Santo Gold]

Thank you for those replies.  This non-profit is very generous and wants to maintain its match formula of 50% up to 10% of pay contributed.  But, they were failing ACP frequently with the match.  So they want to consider an auto-enrollment feature but keep the same match (the match already is 100% vested).

Could they do auto-enroll with the employee contributions with up to 6% of pay after year 3, but still have the match at 50% up to 10% of employee contributions, or does the auto enroll have to go up to 10% for the employee contribution as well?

Thanks

 

[MWeddell]

21 hours ago, Santo Gold said:

Could they do auto-enroll with the employee contributions with up to 6% of pay after year 3, but still have the match at 50% up to 10% of employee contributions ...?

Yes, the employer could do this assuming the plan document was amended accordingly.

[Santo Gold]

Sorry for asking so many basic questions, I just do not work many auto-enroll plans.  Since this is a 403b with a QACA and we have immediate entry for employee contributions.  Can we still have a year of service plan entry eligibility for the employer match and still satisfy the QACA requirements?  

[MWeddell]

Yes, you may disaggregate for testing purposes your 403(b) plan into a "plan" covering those who attained age 21 with one year of service (possibly using an entry date assumption) and those who did not do so.  The main group would have a QACA and the < age 21 or < 1 year of service would be subject to ADP testing (and perhaps a few of them would have ACP testing).

However, I don't recommend that plan design.  It means that the timing of the auto enrollment must be when they enter the QACA "plan" not shortly after becoming initially eligible.

[Santo Gold]

Thank you; I think I understand.