Automatic Enrollment and Nondiscrimination

[Guest Offender]

Is automatic enrollment a plan right or feature that is subject to nondiscrimination rules? In other words, must automatic enrollment be applied only to a nondiscriminatory employee group as defined under IRC 410(b) or 401(a)(4)? What is the basis for your opinion?

[ETA Consulting LLC]

No, it couldn't be. All automatic enrollment does is create two equivalent defaults on the 'elections' made in the elective deferral process. Think of it like this, in order for the contribution to fall under 401(k), it must be made pursuant to the election of the employee (e.g. cannot be mandatory). So, under any and all circumstances, the employee will be given an opportunity to make an election. If the plan has auto-enrollment, the employee will be given an opportunity to elect not to defer (or to defer at a different amount). If the plan is not an auto-enrollment, the employee will be given an opportunity to elect to defer.

Nothing else changes, it's just that automatic enrollment says that you can avoid any inconvenience (imagine that) of making an election to defer; or better yet, we're going to make it inconvenient for you if you do not want to defer. Neither one precludes you from making an election.

Good Luck!