Delayed Start to Auto Enrollment in Safe Harbor Plan

[Guest Number5]

Can the start of auto enrollment be pushed out or does it have to start within a certain period from meeting eligibility in the plan?

Suppose a company currently has a Safe Harbor plan with one year eligibility and a QACA/auto enrollment feature in place. If the company wanted to offer immediate eligibility but did not want the auto enrollment feature to kick in until the second year of employment/eligibility, would that be allowable?

This might create more of burden with explaining it in the annual notice, but otherwise I'm not able to find a specific citation that would prevent such a delay in starting the auto enrollment. In describing the minimum initial percentage, the regulations (I'm looking at 1.401(k)-3(j)) do not seem to tie the initial period to eligibility or any specific date.

Does anyone see a problem with delaying auto enrollment like this?

Thanks!

[MWeddell]

Suppose a company currently has a Safe Harbor plan with one year eligibility and a QACA/auto enrollment feature in place. If the company wanted to offer immediate eligibility but did not want the auto enrollment feature to kick in until the second year of employment/eligibility, would that be allowable?

I think this is not just permitted but required in your circumstances -- QACA covers only those with a year of service but plan lets employees make deferrals before then. The automatic enrollment must take plan when participants enter the "plan," which in the testing regulations means the portion of the plan that satisfies the QACA safe harbor rules, not the otherwise excludable employee portion of the plan that is subject to ADP / ACP testing (if it has any HCEs).

I usually tell clients that having a longer eligibility service condition for employer contributions than for elective deferrals doesn't work well for the QACA safe harbor design because of the delay in when the automatic enrollment must occur, but apparently you like this side effect in this instance.