Negative Enrollment for "some" employees?

[KateSmithPA]

We have a plan for a large company that owns several hotels and restaurants. They would like to implement a negative enrollment program but would like to exclude from the negative enrollment those employees whose compensation is primarily made up of tips. They feel it would be unfair to those employees because of the uncertainty of their income from week to week. They do not want to exclude these employees from the plan, they just don't want them to be subject to the negative enrollment.

Can they do this?

[E as in ERISA]

Proposed legislation only requires 70% coverage for the discrimination safe harbor.

[four01kman]

I don't see why you couldn't do this. It sounds as if there is no discrimination in favor of the HCEs. It probably will have to meet the normal requirements for benefits, rights and features of 401(a)(4) and 410(b), but it seems there is an automatic pass without HCE involvement.

[jsb]

You note that most compensation comes from tips and such. So why would you want to exclude them? If the default is a percentage of pay, then in any event it is a small number for these folks, and they need to save for the future, too. And aren't they free to opt out at any time? Isn't the goal to avoid people's inertia to get them started with the program, and then count on their inertia to keep them there? If you exclude them, your message is "To our valued employees: we think saving is so important, we help you get started with automatic enrollment. But you guys who make mostly tips, we don't think you are going to make enough money here to save, so you aren't signed up." Sign 'em up like everybody else and let them take themselves out if they choose.

[dmwe]

I agree on the opt out feature for those who don't want to participate. Besides, I've heard that some wait staff can make some pretty big tips.

[E as in ERISA]

Is the issue partly one of how to withhold it? The employees gets paid minimum wage (which is sometimes half or less the regular rate for wait staff). Some days they may make hundreds. Other days it may be slow. They supposedly report the tips to the employer so it gets counted for withholding. But that cash doesn't actually run through the payroll system. So ultimately it becomes an issue of how to withhold both taxes and 401(k) from the small paycheck?

What percentage are currently participating in 401(k)? 0 percent? Why not do an aggressive campaign to encourage them to voluntarily contribute, but not actually use automatic enrollment because of the administrative issues.