Mandatory vs Optional under PPA

[Guest gfeligonde]

Under our current plan, there is a (1) voluntary employee deferral and (2) 3% Safe Harbor flat employer contribution for all. All funds go direct into a MM account and then the employee can transfer to any Vanguard fund.

In reading about the changes, I believe I am correct in stating that going to Automatic Enrollment on the deferral side is optional. But then there is, to me, confusing mention of Safe Harbor and default investment. Does that refer to pre-exisiting Safe Harbor or is it just in reference to the Automatic Enrollment change?

If we do not add Automatic Enrollment, does our Safe Harbor remain the same? Can we continue depositing funds into the MM account? This could become a major issue here if we are required to change our exisiting arrangement.

Thank you,

gfeligonde

[Tom Poje]

the new regs did not get rid of or change the current safe harbor 401k plan rules.

they did add a new type of plan, safe harbor automatic enrollment (not until 1/1/2008). that is the type of plan that needs default investment..

by the way, your safe harbor notice MUST now include vesting and distribution from the plan. no more reference to the SPD

[austin3515]

Did you read ASPPA's letter to the IRS asking for some leniency on your last point? Do you think it will work?

[Tom Poje]

It does not appear there will be any leniancy. That was given last year.

I am now a member of the Q and A committee.

this issue was discussed at the meeting a few weeks ago, and the IRS individual thought initially it was an oversight, but on further research found this was an intential requirement (for better or for worse).

Instead of grumbling I simply wrote a crystal report to pull the data I need from Relius. maybe I have to fill in a few user fields initially, but once done it should work year after year.

[Tom Poje]

and just in case I misunderstood the gist of the original question:

the proposed default investment rules state:

"A fiduciary of the plan that complies with this proposed regulation will not be liable for any loss, or by reason of any breach that occurs as a result of such investments."

"As part of PPA, section 404© of ERISA was amended to provide relief accorded by section 404©(1) to fiduciaries that invest participant assets in certain types of default investment alternatives in the absence of participant onvestment direction."

my understanding would be if you dont follow these guidelines you simply give up the 404c. e.g. even though you have a default investment, the participant is deemed to have control over the investment.

[Guest gfeligonde]

Thanks Tom.