MDO for plan w/auto-enrollment

[TPApril]

making sure I grasp the ability to give 0% missed deferral opportunity for a plan with auto enrollment.

Employee rehired in 2022, and therefore eligible per plan doc to reenter plan on rehire date.

EE deferrals not started until after completing new hire requirement of 3 months worked, in early 2023.

I believe then that because deferrals were started w/in 9.5 months of failure, due to the auto-enrollment feature, no MDO required (ie 0% MDO).

[cathyw]

The conditions for avoiding any QNEC for the missed deferrals include providing appropriate notice to the participant within 45 days of commencing the correct deferrals.  Was that done?

[TPApril]

cathyw - thanks much

Getting to the nitty gritty of the 45-day notice requirement, curious for thoughts on what would be treated as the start date of the 45-day period (date withholding actually begins):

• First day of effective payroll period
• Last day of effective payroll period since 401(k) is being first deferred as of this date
• Actual pay date, since this is the date of the transaction (or formal deferral by employee)

Working with actual dates for example:

• Payroll period is 3/1-3/15
• Paycheck date is 3/20

 

[401kology]

The 45 day notice period would begin on the date of the paycheck/pay date as that is when the 1st correct deferral begins.  

[401kology]

You also must make up 100% of any missed match if the plan provides a matching contributions.  I wrote a blog on this if you find it helpful: https://www.newfront.com/blog/401k-ology-the-missed-deferral-opportunity

 

[Paul I]

Also, remember to add lost earnings to the missed match.

[TPApril]

I'm curious if someone can confirm.

Generally, you will use the applicable ADP rate (HCE or NHCE) to calculate the rate of the Missed Deferral which is then used to calculate the MDO and Missed Match.

If the correction is being made during the current year, do you rely on the prior year's ADP?

Alternatively, if the plan has Auto Enrollment, I'm thinking you ignore the ADP and use the rate of auto enrollment that the participant would have been assigned.

[C. B. Zeller]

The ADP is used when an employee was improperly excluded from a non-safe harbor plan. Automatic enrollment is considered to be equivalent to an affirmative election, so you use the rules for failure to implement, which use the employee's actual (or deemed, in the case of automatic enrollment) election.