negative elections for some but not all participants

[ERISA-Bubs]

Can we have a negative election applicable to one group of employees, but not applicable to all groups of employees? For example, the plan will say, "if you are a salaried employee, you must elect to defer compensation or no compensation will be deferred. If you are an hourly paid employee, we will automatically defer 3% of your salary unless you elect otherwise."

Are there any issued with this?

[ETA Consulting LLC]

No. I cannot see this as a benefits, rights, & features issue because they are effectively the same. The only thing you are changing is 'what happens when a person doesn't respond'. However, everyone is still provided a chance to respond and make an affirmative election.

Good Luck!

[My 2 cents]

Does such a distinction serve a rational purpose? How many highly compensated salaried employees (the terms "highly compensated" and "salaried employees" being distinct and not at all necessarily both true or both false) would fail to make such an election if required, and how many would elect only 3%? Wouldn't it help for testing purposes to automatically bring in as many non-HCE salaried employees (at a default rate of 3%) as possible?

Is it possible that notifying the employees of such a policy would have negative effects on morale?

[ETA Consulting LLC]

Good questions. I've always been a fan of 'pick a uniform process and stick with it', the only exception being when there is some type of leverage to be gained from applying different procedures to different groups. In this case, I cannot see where two distinct election processes would create anything but additional tracking to determine who gets what form.

Good Luck!

[Tom Poje]

I don't run any auto-enrolls, but I am not so sure (I thought it was pretty much all or nothing) I certainly wouldn't think it's possible if it is a QACA because you could have NHCEs being treated differently from other NHCEs

1.414(w)…

1. General rule. The notice requirement of this paragraph (b)(3) is satisfied for a plan year if each covered employee is given notice of the employee's rights and obligations under the arrangement.

(3) Covered employee. Covered employee means an employee who is covered under the automatic contribution arrangement, determined under the terms of the plan

1.401(k)-3(j)(1)

....................

one document checklist I have has the following choices, but I can't tell if (iii) would give you that option. the corresponding portion of the basic document describes eligible employee as any employee who has net the eligibility requirements.

7e. If C.7a is "Yes", indicate who will be eligible to receive automatic contributions:

i. [ ] Eligible Employees who have not made an Elective Deferral election.

ii. [ ] All Eligible Employees to the extent that their Elective Deferral elections equal or are less than the automatic enrollment amount.

iii. [ ] Other: __________

NOTE: If C.7e.iii is selected, the description must be objectively determinable and may not be specified in a manner that is subject to Company discretion.

the govt notes at

http://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics---Automatic-Enrollment

say all employees

(iii) Exception to automatic enrollment for certain current employees. An automatic contribution arrangement will not fail to be a qualified automatic contribution arrangement merely because the default election provided under paragraph (j)(1)(i) of this section is not applied to an employee who was an eligible employee under the cash or deferred arrangement (or a predecessor arrangement) immediately prior to the effective date of the qualified automatic contribution arrangement and on that effective date had an affirmative election in effect (that remains in effect) to—

(A) Have elective contributions made on his or her behalf (in a specified amount or percentage of compensation); or

(B) Not have elective contributions made on his or her behalf.

[K2retire]

Good questions. I've always been a fan of 'pick a uniform process and stick with it', the only exception being when there is some type of leverage to be gained from applying different procedures to different groups. In this case, I cannot see where two distinct election processes would create anything but additional tracking to determine who gets what form.

Good Luck!

Automatic enrollment plans frequently have errors in enrolling people at the proper time and rate. The QNECs to fix those errors can be costly. Having to figure out who is or isn't covered by the automatic enrollment and when (especially if people move between the groups) seems to dramatically increase the possibility of errors.