QACA

[Guest JWB19]

Any thoughts on whether a 401(k) plan may have certain groups of participants subject to a QACA and then have other employees fall under another safe harbor? In other words, must 401(k)(13) be applicable to the entire plan for it to apply?

[K2retire]

Our regulatory compliance staff believes it is possible, and designed our PPA software updates to indentify specific individuals as EACA, QACA or neither. What I can't imagine is why anyone would want to create that particular administration nightmare.

[Kevin C]

Doesn't the uniformity requirement in 401(k)(13)©(iii) require the same default deferral rate and increase structure to apply to all participants who have not made elections?

And, don't forget the limits on HCE matches in 1.401(k)-3©(4) still apply.

I'm not sure how you would make it work unless you are just using two different formulas for the QACA match. Even then, all of the HCE's would have to receive the lower match.

But, I've always thought the QACA automatic increase requirement was reason enough to avoid using a QACA.

[MWeddell]

If one is in a situation where a plan is mandatorily disaggregated for testing purposes into 2 plans (e.g. union and nonunion employees), then it is possible for only part of the plan to be a QACA. Other than those fairly limited circumstances, the plan document must specify the ADP/ACP testing method for the entire plan.

[Guest JWB19]

If one is in a situation where a plan is mandatorily disaggregated for testing purposes into 2 plans (e.g. union and nonunion employees), then it is possible for only part of the plan to be a QACA. Other than those fairly limited circumstances, the plan document must specify the ADP/ACP testing method for the entire plan.

'

Thanks for the responses. The heart of my question is what does "arrangement" mean as used in "qualified automatic contribution arrangement"? For example, could a plan take the position that employees in Division A fall under a separate arrangement (i.e., the QACA) and employees in Division B are covered by another arrangement that is not a QACA. This would obviously be true if one was collectively bargained and the other wasn't, but what if both are not collectively bargained?

Judging from the response, it seems like the answer is "no." Can you provide me with a citation that says this or that otherwise defines "arrangment"? The reason I ask is that the 414 regs provide that not all individuals need to be covered by an EACA as long as the plan document specifies. I can't find anything that addresses this in 401(k)(13) or in the regs. Thanks!

[Kevin C]

Here is a section from the preamble to the revised final regs published 2/24/2009.

D. Exclusion of current affirmative elections from automatic enrollment

The proposed regulations provided that an automatic contribution arrangement does not fail to be a QACA merely because the default election is not applied to an employee who was eligible under the cash or deferred arrangement (or a predecessor arrangement) immediately prior to the effective date of the QACA and on that effective date had an affirmative election in effect (that remains in effect) to have elective contributions made on his or her behalf (in a specified amount or percentage of compensation) or not have elective contributions made on his or her behalf.

Some commentators requested that employers be permitted to treat employees who did not affirmatively elect to make elective contributions under the plan as though they had affirmatively elected zero. These commentators stated that it would be administratively difficult to determine which employees had affirmative elections in effect prior to the effective date of the QACA.

The regulations do not expand the exception for automatically enrolling current employees to employees who have not made an affirmative election. Under section 401(k)(13)©(iv)(II), only those employees who had an affirmative election in effect immediately before the QACA became effective are permitted to be excluded from having a default election apply to them.