Automatic Enrollment Problem

[Below Ground]

Client is considering adding an automatic enrollment provision. This provision will NOT include the automatic escalations defined in PPA. Those provisions are viewed to be administratively burdensome to apply with a large, turn-over prone workforce. Looking at this problem one can see why concern is appropriate for that type of population.

Another question is what happens if an eligible person does not return the "negative election" and the employer does not apply the "automatic deferral" (eg. 3% deferral) to the person's paycheck? Does the employer need to contribute a special contribution for this person to make up for the "automatic deferral" not applied to this person's paycheck?

Thanks for your input!

[Guest hyper]

Maybe I am missing something but why would you require the return of a "negative election" form? If a participant must return some kind of form for a "negative election" why not just require a regular deferral election form?

The point of the automatic enrollment is the participant is not required to take any action to enroll. The participant is provided notification of the deferral amount and, unless he or she elects otherwise, he or she is automatically enrolled.

[Below Ground]

I see that I was not clear with my question. I was asking what happens if the person does not elect out of the "automatic deferral" and the employer fails to apply to the automatic deferral to that person's paycheck. Let me provide an example to insure clarity.

Employee will be eligible this coming July 1st. Prior to this date Employer provided a notice describing the Plan and a Salary Deferral Election Form. Since the Plan includes automatic enrollment (with an automatic 3% salary deferral to the Plan), the Employee is told that if he/she does not return the Salary Deferral Election Form, 3% will be automatically withheld from that person's paycheck. To avoid this deferral the Employee can return the Salary Deferral Election Form with an election of zero for deferral (aka negative election).

Again, the question was what happens if the Employee does not return an election and the Employer does not apply the 3% Salary Deferral as defined under the automatic enrollment. Is the Employer required to make a contribution on behalf of Employee to "make up" for the lack of the "3% Deferral"?

From other sources I have learned that the answer is "yes". Also, I learned that by use of 6% you could simplify the deferral escalation requirements of the "safe harbor option". Thanks DW!

Hope this clarifies my question Hyper. Let me know if you have a different opinion on the answer to the actual question. Thanks for your original post.

[401_4_ever]

I'm thinking, yes that is an exclusion of a participating employee. It would create an operational failure. The correction method would be an employer contribution on behalf of the employee. I don't think that situation is any different from the participant who fills out an election form, and the PA never actually starts the deferral process. Anyone disagree?