Automatic Enrollment and Opt Out

[30Rock]

My understanding of the final regulations is that after giving the automatic enrollment notice, the employee must have a reasonable period of time to elect not to participate (ie opt out) or to elect to participate at a different %. I have a client that wants to enforce automatic enrollment immediately, but then offer the 90 day permissible withdrawal option where they can ask for an undo so to speak of the amount.

Is this permissible? I feel that it may violate wage withholding rules since you do not give them an opportunity to opt out.

Thoughts?

[401K_AZ]

You can implement an plain automatic enrollment arrangement (ACA), but you have to do an EACA to get the 90 day withdrawal. If this is an existing plan that is also a calendar year plan, you cannot implement an EACA midyear generally.

For EACAs, an initial notice must be provided to newly eligible employees not more than 90 days before the employee becomes eligible to participate in the plan and no later than the date the employee becomes eligible. For plain ACAs, the notice should be provided to participants upon eligibility to participate and thirty days before each Plan Year.

As far as state wage laws, it has generally be held that ERISA preempts those state laws. The DOL has been pretty consistent with its view that a employer is free to implement an ACA, regardless of any state wage withholding or payday laws. I have personally been involved with assisting a NJ client when an employee filed a complaint about the automatic enrollment, and the judge dismissed the claim based on ERISA preemption.

[30Rock]

I think the EACA can implement for new hires mid year, but it loses the 6 month extension.

Thanks!