When is automatic enrollment not automatic enrollment?

[CTipper]

2 questions about this, please

Question #1

When does the 90 days start? I was first told that it started the day the money was deposited in the trust. Now I'm being told it's the day it's taken out of the paycheck.

Question #2

What do you have to do to loose your 90 day free look?

Part A

Let's say an employee has one withdrawal at whatever the plan states is the default amount. Then 1 week later for the next payroll that employee changes the amount coming out of his paycheck to a different amount. Does the employee still have access to the 90 day free look?

Part B

Let's say this employee hasn't made any changes to their deferral amount but has logged on to the asset holder and has changed the investment option to something other than the default. Can this employee still benefit from the 90 day free look?

Thanks

Christopher

[Tom Poje]

PPA says:

section 414 is amended by adding the following (simply brief bullets pertaining to your question, not obviously the whole issue of automatic enrollment):

(w)Special Rules For Certain Withdrawals...

(1)(A)the amount of ANY such withdrawal.... (emphasis mine - it says ANY, so it looks like you could have actually changed investment choices)

(2)(B) timing for maing election ....made no later than the date which is 90 days after the date of the first elective contribution

(2)©....equal to the amount of elective contributions made with respect to the first PAYROLL PERIOD... (again, emphasis mine) [of course later it adds issues such as gains/losses, etc]

I don't see anything implied in that statement as to 'when the $ are deposited in the trust'.

[MSN]

On 2A, the permissible withdrawals are only applicable to contributions that were made under the EACA. Once the participant makes an affirmative deferral election, any subsequent contributions made in accordence to that election would not be eligible for distribution without some distributable event.

[CTipper]

the way I'm reading this, MSN and Tom are not agreeing with each other

Tom is saying first deferral amount from the first pay period only

MSN is saying that it's all deferrals until an affirmative election is made

so? which is it?

MSN, are you saying that if you affirmately (?) elect a deferral amount the amounts deferred prior to that can still be withdrawn?

Finally, anybody have any ideas if changing the investment election counts as an affirmative election?

Christopher

[Tom Poje]

Tom's quote on the 'first payroll' is not saying that is the only deferral available for distribution. the regs say that is the date when the 90 day clock starts ticking. the rest of 2( C) says ....and any succeeding payroll period beginning before the effective date of the election....

(but Tom has other work sitting on the desk so he can't type everything, he does expect someone to go back and look and see what the regs say - ha!)

3( C) of the same regs does say ...in the absence of an investment election by the participant, contributions are invested ['in a default fund' (my paraphrase0] so that would seem to say once you make an election to a fund all bets are off.

since these plans don't satrt until the new year, I would expect a good chance of same clarification on some of the issues.

[CTipper]

since these plans don't satrt until the new year, I would expect a good chance of same clarification on some of the issues.

but that's the rub

90 days from October 2nd or 3rd is January 2008. I'm hearing people suggest to the clients that they start the second week of October. So, it does mean that we may have to start thinking about this earlier.

So, it looks like you agree with my interpretation that a chane in the default investment option is an active change.

thanks.

Christopher

[Tom Poje]

I'm not sure what you mean.

The first possible 'payroll deduction' for automatic enrollment would be Jan x.

the person would have 90 days after that date to make an 'election' to take a distribution.

In effect through the end of March.

[CTipper]

No

Automatic enrollment is allowed now.

What we're waiting for is the 90 day free look.

The way I've read the regs (which doesn't mean much) is that the ability to take money out using a 90 day free look starts January 1, 2008. It doesn't start April 1, 2008. Have I misread the reg and it specifically states that the 90 day free look (I know they don't call it that) applies only to deferrals made to plan years that started after December 31, 2007?

So, since automatic enrollment is allowed now. And if you can start to take your money out on January 1st if it's not been in there 90 days, that means it's October 2nd or 3rd.

No?

Christopher

[Tom Poje]

hmmm. hadn't thought about something like that, though the notes I have say that the amendments of this section shall apply to plan years beginning after 12/31/2007, and I read that to say the 90 day distributions rules don't apply to deferrals made in a plan year prior to that date.

[Jean]

Regarding when the permissable withdrawal is allowed, we were going to allow an employee to request the withdrawal within the 90 day window if they did not change the salary deferral % but they did change the default investment. This is not an option? Any change (deferral / default) removes the permissable withdrawal option?

[MSN]

Even though the plan currently has an auto enrollment feature, it may not have an eligible automatic contribution arrangement. The permissible withdrawals are only for contributions made under an EACA. If the plan does have the EACA for 2007, then I would think that the withdrawals would be permitted in '08 for the contributions made on behalf of participants within the 90 day window extending back to Q4 '07. If you don't have an EACA in 2007, then you will not be permitted to withdraw '07 contributions when the withdrawal window becomes available in 2008.

[CTipper]

um, what's an EACA?

are you trying to link the automatic increases, etc., to the ability to withdraw the money within 90 days?

where does it say that?

Christopher

[MSN]

Eligible Automatic Contribution Arrangement.

This is different from the QACA, which would include the auto increases, contribution guidelines, etc...

The EACA is defined for purposes of the permissive withdrawals as an arrangement:

1. That is part of a CODA

2. Which uses a negitive election provision

3. In which contributions are invested in accordance with DOL regs in the absence of participant direction and

4. That satisfies the annual notice requirement.

[CTipper]

okay

I guess I was always presuming all this stuff would be part of it. I never thought you could have a valid automatic enrollment without this stuff. I guess that was your point. Sorry I got lost in the alphabet soup.

But, I guess the point is we have not yet definitely been told whent automatic enrollment is no longer automatic enrollment

Christopher

[MSN]

For clarification, you can still have an automatic enrollment feature that does not meet EACA criteria, it just will not have the 90 day withdrawal window attached.