Automatic Enrollment under PPA

[PMC]

Just wondering which group(s) of employees can an automatic enrollment feature be applied to -

1. As far as the qualified automatic enrollment feature described under PPA, the feature is applied to all eligible employees. Eligible employees mean all employees eligible to participate in the arrangement, other than employees eligible to participate in the arrangement immediately before the date on which the arrangement became a qualified automatic contribution arrangement with an election in effect (either to participate at a certain percentage or not to participate).

Suppose an existing 401(k) wants to begin the the qualified automatic enrollment arrangement effective 1-1-08. They are going to start at 3%. What about employees who have an existing election at 2%, or those who have made an election NOT to contribute? They are not eligible employees for purposes of the qualified automatic enrollment arrangement and therefore they cannot automatically enrolled and no employer contributions are required on their behalf?

So an existing 401(k) plan that has always required all eligible employees execute a SRA indicating yes/no re- their intent to contribute, can utilize the new qualified automatic enrollment arrangement, get a pass on the ADP/ACP/T-H and yet only start newly eligibles (those on and after 1-1-08) at the 3%, and all others remain at their current SRA elections until modified?

2. The group to which automatic enrollment can be applied seems different under the PPA's qualified automatic enrollment arrangement than what is currently available. Do you agree that if an existing plan wants to include the automatic enrollment and start it at say 4%, that all eligible employees as of the date the new feature comes into being who have made an election to contribute less than 4% (or not contribute), can be automatically enrolled and have their deferrals increased to the 4% - subject to the automatic enrollment notice being distributed timely? Thereby applying this feature to newly eligible and existing participants alike.

[SteveH]

I believe the ASPPA seminar said it could be either way. Although I am not sure if they went into as much detail as what you are asking. I got the impression that if an employee had never affirmatively signed up for the plan, then they also hadn't affirmatively not signed up for the plan. So those existing employees could be included in the auto enrollment feature. Your point about someone that has signed up at a 2% rate...that I don't know. I would be inclined to say leave them at 2%, or maybe have them specifically reaffirm their intention of staying at 2%.

I personally don't work on a while lot of 401(k) plans anymore, so the section on auto enrollment I think i let my mind wander a little.

I would think increasing someone's participation when they had previously signed up at a lower level is just going to give you headaches. People are very sensitive when you start jerking around with their pay. If tehy do get upset and they can throw their previous election in your face it won't matter if you feel you were justified to increase it because of the new auto enrollment feature. The employee is mad now, you have extra work to back out the additional contribution, and bring the deferral election back down to 2%.

I wouldn't do it, but keep searching around. Don't take my word as the final.