Yet Another Negative Election Question

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Anyone ever give negative enrollment elections to individuals before they become employees? Employer A is buying the assets of Employer B. A large number of employees will become Employer A employees as of January 1. Employer A's 401(k) plan allows immediate participation. In order to ease the recordkeeping during the transition Employer A wants to provide 401(k) enrollment material in November (while the individuals are still employed by Employer b). If an employee does not return the enrollment material, then the negative enrollment will take effect January 1.

This is similar to the fact pattern in Rev Rul 2000-8 except, of course, that the employees aren't employees yet.

I see no reason why the rationale in Rev Ruls 98-30 and 2000-8 should not extend to this situation. Here an individual will actually have more time than usual to consider their options.

Would anyone have any concern with this?

Thanks-

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[Guest JimJ]

I wouldn't...

Sounds fair and reasonable, but I am no expert.

[RCK]

We have been doing automatic enrollments for just over 2 years now, and have applied the concept in a number of acquisitions.

I would not see a problem with the approach as you have outlined it. Our primary concern in situations like this one is the mechanics of implementing the procedure--when do they move between payroll systems, how do you pass information to the payroll system and the recordkeeper, etc.

I would add that we decided early on never to call it a negative election. It is always an automatic enrollment--clearly carrying a more positive spin.

Note also that there is uniform concern about inertia among auto enrollees--they do not change their percentage or investment elections.

RCK

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Thanks, RCK-

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