Auto Enrollment

[Guest WWPDRC]

A 401(k) plan has Auto Enrollment feature starting with 3% deferral rate, plus annual increase of 1% to a maximum of 6% of pay. If an employee makes an affirmative election to defer less that 3%, is he subject to the automatic increase each year.

[Jim Chad]

I would think that as soon as someone makes an affirmative election, the auto enrollment no longer applies to that Participant. I would tell our payroll department not to increase his deferrals until they recieve written instructions from the Participant.

FWIW

[Guest ecleverdon]

A 401(k) plan has Auto Enrollment feature starting with 3% deferral rate, plus annual increase of 1% to a maximum of 6% of pay. If an employee makes an affirmative election to defer less that 3%, is he subject to the automatic increase each year.

The statute provides that the default contribution is made at the "qualified percentage of compensation," which, by definition, incorporates the automatic increases. When the employee chooses a different percentage, he or she is opting out of using the "qualified percentage" -- and thus the automatic increases inherent in the "qualified percentage" don't apply.

[PLAN MAN]

The PPA provisions are safe harbor provisions, but are not the only option available to incorporate automatic enrollment in a plan. I would follow the language in the plan document. If the proper notice is given to participants, I don't see why the anual increase could not apply.