Minimum Deferral Percentage

[justatester]

A plan requires that your deferral rate be at least 3%. (So, you can't defer 1or 2%) Is this ok or would it need testing? If testing is needed, I am assuming BRF, but how would that be run?

[BG5150]

FWIW, auto-enroll plans have 3% rates.

[justatester]

I thought about that...which is why I am leaning it is ok...but something is bugging me about it.

[ESOP Guy]

I am far from an expert on auto enroll plans but don't they allow you to opt out of auto enroll and then choose anything?

Or put another way you would opt out and then pick a 1% rate.

As described this seems to say you HAVE to go from 0 to 3% and you can NEVER do 1% or 2%. That seems to be a big difference if I have it correct.

[jpod]

What is the reasoning for the 3% minimum? Not being critical, just curious.

[justatester]

I am not sure what the client's reasoning is. This plan does not use auto enrollment. It is just a general plan provision that if you defer you are required to defer at least 3%.

[Doghouse]

We've had many plans with a minimum 2% deferral - which was implemented to limit the expense and HR effort of account maintenance for very small contributions. We have taken the position that thsi can't be done on a safe harbor plan, which has specific rules about restrictions on deferral amounts (that may be what you're thinking of).

I also seem to recall that there was an issue about current availability for 410(b) purposes if the minimum is unreasonably high, but I don't recall a specific percentage being mentioned.