Automatic Enrollment

[Guest Denise S. Prince]

Regarding the participant notification requirements for automatic enrollment - if a participant is given notification on their date of entry and allowed the 30-day opt out period, is this sufficient? Can the level of automatic contributions be withheld for payrolls during the 30-day period OR is the 30-day notification period defined as the 30-day period prior to the participant's date of entry?

THANKS!

[J Simmons]

The QRP must give each EE the opportunity to opt out in advance of the first automatic deferrals of his or her pay; QRP may permit a retroactive opt out for up to 90 days from when the first Automatic Pay Deferrals for a participant occur.

In light of this, the 30-day retro opt out ought to be fine; it's within the 90 days allowed to be designed into the automatic enrollment QRP's design.

The EE must be given a notice a reasonable time before the first pay of an EE is automatically deferred. IRC sec 401(k)(13)(E)(ii)(III).

As for whether giving the EE the notice on his entry date, depending on all the facts and circumstances that might not be a reasonable opportunity. For example, suppose that you pay every other Friday, and entry is January 1 and July 1. On a given year, an EE might enter the QRP on Thursday, July 1 and be given the notice then. What if the next day, Friday, July 2 is a payday that year. Maybe the day before the first automatic deferrals is not a reasonable time.

[John Feldt ERPA CPC QPA]

Can the level of automatic contributions be withheld for payrolls during the 30-day period? Yes, you may be required to if you have immediate entry and no election is made in the first 30 days of hire and a payroll occurs in that time.

FYI, the rules that may be adopted to allow the distibution of any deferrals made during the initial 90-day period do not begin until the 2008 plan year. So, no distributing those yet.

[Peter Gulia]

One method that some employers might consider is delivering the required notices and the summary plan description as enclosures that accompany an employment offer letter (if the employer regularly uses such a letter). With some new employees, doing so might increase how much notice time elapses before the first pay date and work period that might be affected by an "automatic" implied election.