auto enrollment

[pmacduff]

opinions please...

we have an off calendar client (12/01 - 11/30) who just instituted auto enrollment features. [For some reason, they added it as of 11/01/2006 (instead of waiting for the plan year beginning 12/01/2006!)]

Anyway, this industry has a lot of line workers who don't make much $, but, of course, didn't return their enrollment forms timely. They were autoenrolled and flipped out when they got their first check and the 401(k) deduction was there. They are paid weekly, so by the time they get to the HR office, the next week's deduction has already been done. They NOW sign the form declining enrollment.

The client wants to refund the $ to these participants. Can we do this?

This is my first auto enroll plan, and I don't know if the "old" rules even made any kind of reference to return of deferrals once the participant declines in writing. I know that PPA references a 60 -90 day window after withholding, but that won't be in effect until 2007 or 2008 when plans use the safe harbor auto enroll rules. The 10% excise won't apply at that time, either and match will forfeit.

Any comments appreciated.

[Guest BobK]

There is no provision under current law to allow the distribution of these deferrals.

The PPA provision, effective for the 2008 Plan Year, allows for distribution of all deferrals

if requested in the first 90 days.

Plans are supposed to notify participants that they can change the auto enrollment amount PRIOR

to the first dollars being deducted. Rev. Rulings 98-30 and 2000-8.

The line workers may be unhappy but they should have had the opportunity to opt out.

Hope this helps.

[pmacduff]

Thanks Bob, we'll leave the small balances in the plan until such time as the particp. could otherwise take a distribution. Since this will be true for '07 as well, I can't wait for 2008 when the newly autoenrolled employees CAN receive a return of $.

As you mentioned, these employees were given the opportunity to opt out (repeatedly, in this case) before this went into effect on 11/1. There is somewhat of a language barrier, however, so the HR person has her hands full!

[RCK]

Our plan has been using autoenrollment since 1999, and we autoenroll probably 2,000 per year. Annually, we refund deferrals to probably less than a half dozen participants who can show that they did NOT receive an effective opportunity to opt out. Those are almost always address problems. We never autoenroll participants whose enrollment kits were returned to us with bad addresses, but sometime the kits don't get back to us in time.

[PLAN MAN]

RCK, does the plan document have a provision that permits the refund of the deferrals? How do you handle taxes? How do you report the refund? Does the situation ever crossover into the participant's next tax year? I'd like to hear more on your process as we discuss options with our clients. Thanks.

[Guest Wolves1962]

•“Eligible” automatic plans may allow a participant to withdraw his deferrals (called “erroneous automatic contributions”), without penalty, within 90 days of the date of his first deferral.

[stephen]

Wolves1962,

I believe you are referring to the PPA rules which are effective for plan years beginning after 12/31/07.