Auto Enrollment and Immediate Entry Date and Administrative Lag

[CO Bank]

I am reading a Plan Document that has Auto Enrollment for new hires; the Auto Enrollment occurs on the participant's entry date, which is defined as being the date of hire. Which means a new hire would immediately starts deferring, effective with the first paycheck.

The Plan though has been operating by auto-enrolling new hires up to 45 days after hire date. This has been explained as due to an "Administrative Lag". The proces for deferring is a bit convoluted, as a TPA's website is used, where participants can elect their deferral percentage, and then this information is passed back to the company. If the participant does not visit the website, then after 45 days, the auto-enrollment kicks in.

I have not heard of "Administrative Lag" as being a valid reason for not auto-enrolling a participant when first eligible. Is this an acceptable delay?

[GMK]

Rule No. 2 says that you have to do what the Plan Document says you have to do, yes?

If it were my plan, I'd change the process, so that enrollment happens (with default elections if applicable) on the participant's entry date. For those who do not want to start deferring right away, I'd provide a election form as part of their first-day paperwork.

[401QUE]

The reason for the "Administrative Lag" would be the required 30-day Auto Enrollment notification. Common is auto enroll plans that have immediate (or rapid) entry to participate. Probably often takes up to 45 days due to the TPA's online system (guessing here).

[Kevin C]

There is a timing exception in 1.414(w)-1(b)(3)(iii)(B) that allows the auto enrollment notice to be deemed timely if delivered asap after date of hire. If it is a QACA, waiting 45 days to start deferrals likely violates the timing requirement in 1.401(k)-3(k)(4)(iii).

What they are doing sounds like an operational failure to me. Going forward, I would either change the process or amend the plan to fit what they are doing.