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Background: Client purchased a plan with automatic enrollment and safe harbor match, with an effective date of 7/1/2021. The plan went live on our system, census was uploaded and participants were notified of their eligibility to participate, received all the required notices, and should have been automatically enrolled if they did not opt out. Client has now reached out (along with their financial advisor) saying that they never wanted automatic enrollment, didn't understand it, and now wants to "cancel" the plan. They have not done any withholding of ANY elective deferrals at this time, so the plan has not been funded. I am of the opinion that since notices have gone out, accounts have been set up, etc. they have a 401(k) plan, and they cannot just "cancel" it, i.e. pretend it never happened. I know how to correct the failure to automatically enroll participants so that is not the issue. Our main point of contention and one I am having difficulty finding any guidance on is; at what point can we say, "sorry, you officially have a 401(k) plan so you have to fund any required contributions and go through the normal termination process to close it"? I believe the plan is active, and that they need to go through the correction process for the automatic deferral failure and then they can terminate the plan. The client contends that since they have not funded, the plan is not active and we should be able to just "cancel" it. We've already told them that they can remove the automatic enrollment provision, so that is not the issue. If I anyone can point me to some guidance on this topic, it would be much appreciated.

It is possible to apply an automatic escalation feature to non-ACA participants? In other words, can a sponsor automatically escalate participants that have made an affirmative deferral election? Plan sponsor wants to have an ACA (at 3%) with an escalation provision of 1% per year up to 8%, but also wants to auto-escalate participants who have elected to defer less than 8% by 1% every year till they hit 8%. Example: Participant affirmatively elects to defer 2% on July 1st, sponsor wants to auto-escalate this participant to 3% on the following January 1st. To me this is like an having a new auto-enrollment date every year for participants that have made an affirmative deferral election, however, instead of being autoenrolled at 3%, they just get increased by 1%. Part II: Does the escalation of non-ACA participants feature need to be in the plan document, or can this simply be an administrative policy and be described in the enrollment form? Our Volume Submitter document is not well suited to incorporating this feature as the only auto-escalation language is tied to the auto-enrollment feature. Part III: Must a participant be able to elect out of the auto-escalation feature? Is there a way to avoid allowing a non-ACA participant to opt out of auto-esclation? Believe me, I would never recommend this feature to a sponsor, but as you know, some sponsors are a lot smarter than the rest of us. Any insights would be appreciated.