Automatic Enrollment -- Failure to Enroll

[davef]

If a 401(k) plan has an automatic enrollment feature, but the employer fails to enroll participants, how do you determine the make-up contribution? Is it based on the automatic enrollment percentage (e.g. 3%) or on the ADP of the group?

[401_4_ever]

I've treated this is an exclusion of eligible employees and done 1/2 of ADP rate as per the EPCRS. This is based on the assumption that the employees were made whole in their paychecks.

I should note the board is split on the issue of whether to use 1/2 of ADP rate, or the full missed deferral given the exclusion of an eligible employee when there is a valid election (and presumedly the auto-enroll is a valid election). The EPCRS examples only addresses someone without an election at all.

The board is split about what to do for if there is a valid election. I think 1/2 of ADP is appropriate since they have been made whole through their paycheck. Additionally the EPCRS revenue procedures list the 1/2 of ADP rate as a reason to not re-do testing. Finally, it calls the 1/2 ADP rate the missed oppourtunity cost, and I don't think the missed oppourtunity is different.

Others believe since you know how much they would have deferred, the missed oppourtunity would be needed. You have to think about re-doing testing if you go that route.