EACA and Existing Participants

[Guest lgm]

I am hearing a lot of different things about the requirements of an EACA, and am hoping you could clarify something. We have a client that wants to use the 90 day opt out provision however they only want to apply the EACA to new participants going forward. They do not want to have to go back and get elections for existing participants and just want their document to read that the EACA is effective 1/1/09 and only applies to people who enter the plan on or after that date. My understanding is that they can not do this, that it has to apply to all existing and new participants. Someone else is telling them it can apply to only new participants.

I am very confused and hope someone can shed some light on this issue. Thank you for any information you can provide.

[John Feldt ERPA CPC QPA]

EACA requires uniformity. Making it apply to only new participants would not be uniform.

ACA does not require uniformity, but then you do not have the June 30th ADP/ACP test refund deadline (March 15 instead) and you do not have a 90 day refund option (I think).

[Guest Sieve]

I agree--both with the response and with the notion that this is a confusing area. And, it's confusing, no doubt, because we still don't have guidance with regard to how a vanilla ACA really is supposed to work. In any event, to be eligible for the 90-day refund, a plan must be an EACA, and uniformity is required (with certain exceptions) with regard to the EACA pursuant to the proposed regs. However, what's particularly confusing is that the premable to the regs says this: "An employer is permitted, but not required, to include the . . . permissible withdrawal provision in a . . . plan, and an employer who does offer this option is not required to make it available to all employees under the EACA. Thus, for example, an employer might choose to make the withdrawal option available only to employees for whom no elective contributions have been made under the CODA . . . before the EACA is effective." I interpret that to mean you still have to have an EACA (including its uniformity provisions) in order for anyone to be able to use the 90-day refund rule, but you do not have to make the refund available to everyone. So, you could provide the avaialbility of the refund only for those who enter the plan on or after 1/1/09--but you'd still have to utilize an EACA. Maybe that works for you.

Here's a different fix . . . if you can get an election from all those who "enter the plan" (your words--do you mean "beome eligible for deferrals"?) before 1/1/09--i.e., a 0% election from those who want to defer nothing--then the EACA does not apply to them, and therefore the 90-day rule would not impact them (since they would not receive the default amount by dint of their 0% election).

In either case, the other requirements of an EACA would apply--including notice to all those eligible for 401(k) deferrals (even if not eligible for the ACA because they already have an election in force).

[Tom Poje]

the more I have re-read the proposed reg on these animals has me leaning towrd the conclusion that there really isn't a separate animal called an ACA, rather you have an ACA and it can take the form of an EACA or a QACA (or I suppose a combination of both)

the preamble to the proposed regs says the following (see page 10, last paragraph):

"The definition of an automatic contribution arrangement under section 514 of ERISA is generally the same as the definition of an EACA under section 414(w)(3), (including the requirement that automatic contributions under the arrangement must be invested in accordance with regulations prescribed by the Secretary of Labor under section 404©(5) of ERISA), but the definition does not include a notice requirement."

it then goes on to say

However, section 514(e)(3) of ERISA requires a notice to be provided to each participant to whom the arrangement applies.

so, the difference would be the notice...but that is taken care of in the next sentence which says

As in the case for the notice under section 404©(5)(B) of ERISA, the specific timing and content requirements under section 514(e)(3) of ERISA are generally the same as the notice requirements under section 414(w)(4), but the interpretative jurisdiction for that notice is also with the DOL.

The title of the proposed regulation is Automatic Contribution Arrangement and the preamble is divided up into:

1. QACA (page11)

2. EACA (page 16)

3. Notices (page 20)

there is no section referring to a seperate ACA.

I've looked at side by side comparisons of ACA, EACA and QACA, and, except for the issue of how to handle prior participants, there is no difference between an ACA and an EACA. The comparisons I have seen say that in EACAs you can exclude, ACAs say it is unclear. (remember, the distribution ability under an EACA is an option, not a requirement)

If you have already lost your copy of the proposed regs, I have attached it. In fact, the opening paragraph to the proposed regs states the proposed regs are done to reflect the provisions of PPA to facilitate automatic enrollment.

[John Feldt ERPA CPC QPA]

Interesting.

So are you saying that an Employer who wants to add automatic enrollment, does not need State law preemption, but does not want safe harbor (QACA), and does not want to apply automatic enrollment to all participants (just to new ones, thus non-uniform), is not able to do just that (have automatic enrollment in the old fashioned sense, ACA)?

[Guest Sieve]

The regs do not have a separate ACA definition that is substantially different from EACA for precisely the reason J4FKBC implies--these regs only were put in place to describe the safe harbor (QACA) and the 90-day return (EACA), and were not intended to address the 401(k) reg that talks about negative elections being ok (early on in the regs). In other words, ACA currently defined in the regs is only there as a precursor to the definition of a QACA or EACA. What I mean is we do not know whether--if we want no QACA & no 90-day return (i.e., a plain vanilla ACA, the old negative election with no chrome or flashy paint)--what we can & can't do and still be a negative election that is permissible. Can we require everyone who has a deferral below the automatic percentage to re-elect each year or else they will default into the ACA percentage? Can we have a default each quarter? Can we default down (requiring those already at 9% to go down to the default percentage unless they elect again to stay at 9%)? Can we have a 15% ACA? Can we have an ACA that is different for some employees (aside from the 401(a)(4) issues in that approach)? The good, ol' negative election--pre-EACA & QACA--is something we still need guidance on if we do NOT want the 90-day return or a safe harbor QACA. (Pre-emption is not an issue, I believe, because the regs go so far as to indicate that you do not need a EACA for preemption to apply. Talk about overstepping the statute!)

As stated, these regs were just for QACA & EACA purposes. The little guidance we have on pre-QACA/EACA ACAs is from a number of years ago and does give some help, but, I feel, not enough. Certainly an ACA described by J4FKBC is one that is permissible, but not by reading the QACA/EACA proposed regs--it's because of the limited earlier ACA guidance we have.