Can You Initially Enroll in 401(k) Plan at Zero Percent?

[Guest Jay345]

Hello all,

I have an owner who would like to enroll in the 401(k) plan, but only defer 100% of his bonus. Is he okay to initially enroll in the plan in January, but choose 0% as his deferral percentage? He would then change it the payroll before the December bonus pay to 100%, and then back to 0% after that paycheck.

I can't think of a reason why he could not do this, but I've never seen someone initially enroll at 0% before.

Thanks!

[Lou S.]

If the plan documnet allows a seperate election for bonus or allows you to change percentage on any payroll there would not be any problem doing what you propose. If the plan document limits the frequency of chnages to something like first of each quarter, you would have a problem with the terms of the plan document.

[Guest Jay345]

The plan document does allow for changes on any payroll, but they have quarterly entry dates. So, could he enroll at zero percent 10/1/14, for example, and then change it to 100% on the 12/15?

My real confusion here is about the initial enrollment. I've never seen anyone initially enroll at 0%.

[GMK]

I've never seen anyone initially enroll at 0%.

It's OK to enroll at 0% (unless the Plan Document forbids it, which I doubt.)

Add automatic enrollment, and you'll see it now and then.

[Guest Jay345]

Makes sense. Thank you both.

[BG5150]

What does it mean to enroll at zero percent?

[Guest Jay345]

Since they have quarterly enrollment, he can't just enroll in the plan on the paycheck his bonus is coming out of. So, I need to get him "in the plan" prior to that so that he can change his election to 100% at the time of the bonus, but he does not want to defer at all until that bonus payroll. Thus, enroll at 0%.

[Bill Presson]

Since they have quarterly enrollment, he can't just enroll in the plan on the paycheck his bonus is coming out of. So, I need to get him "in the plan" prior to that so that he can change his election to 100% at the time of the bonus, but he does not want to defer at all until that bonus payroll. Thus, enroll at 0%.

Don't confuse initial entry with the ability to change an election. They are two different things and should be covered separately in the document.

[BG5150]

"Entry Date" is when you become a participant in the plan. Deferral election is irrelevant. To me,if you don't sign a form on or before your entry date, you are zero percent.

So, then, if the administrative procedure is to allow deferral change for any payroll, a participant can choose to start, change or stop for any payroll period after the entry date.

[BG5150]

It's not like health coverage where if you miss signing up you are out of luck until the next enrollment window.

[Guest Jay345]

Ah, good point! I assume though, that it would not hurt anything to have him fill out the paperwork with a 0% election just to have something in the file just to make him feel better?

[BG5150]

That should be standard procedure for everyone.

[Lou S.]

What does it mean to enroll at zero percent?

I see election forms that are 0% but the particpant elects investments for any employer contribution such as profit sharing or non elective safe harbor.

[Tom Poje]

I lean toward recommending people to fill out a form at 0%, just as a safety protection.

I think a few years ago someone noted a case of a small plan, with a safe harbor match. owner is the only who defers, so is the only who gets a match.

no other contributions made, so owner got the monopoly "get out of top-heavy free" card.

now, a few years after the fact the NHCEs go to the DOL and say they never even knew about the match, and they would have deferred had they known.

who do you believe - the owner who said he gave out the info or the NHCEs?