New QACA formula

[traveler]

Client has a QACA which includes an intial deferral percentage of 3%, and subsequent annual increases at 1% to a maximum of 6%.

It's now considering changing the QACA formula effective 1/1/16 but only for new hires. The initial deferral pecentage will be 6%, with 1% annual increases to a maximum of 10%. It does not want to apply this new formula to anyone hired before 1/1/16.

The regulations require that the deferral percentage be uniform for all employees, except that it may vary based on the number of years (or portions of years) since the beginning of the initial period for an eligible employee. The initial period begins when the employee first has contributions made pursuant to a default election under an arrangement that is intended to be a qualified automatic contribution arrangement for a plan year and ends on the last day of the following plan year.

The regulations would seem to preclude maintaining the two differnt formulas. Has anyone seen informal guidance from the IRS that would allow different formulas for different groups?

Could the different formula's be used if the group covered by each formula passes 410(b)?

[LANDO]

I too am struggling with a very similar issue. Prior QACA was 3% initial with a 1% ratchet to 6%. Effective 1/1/2016 they want to go to a straight 6% QACA, but only for those hired after 1/1/2016. I'm thinking this won't meet the uniformity requirement, but I am still looking for confirmation.

Traveler, were you able to find an answer to your question elsewhere, and if so what did you learn?

Thanks

LANDO

[traveler]

I did not find any guidance on the issue other than the regulations.

In your situation, at least everyone who is subject to the QACA will get to the same deferral percentage (6%); there just may be a few individuals who take longer. Your client has a better chance arguing that the regulations allow those hired before 2016 to reach 6% over a number of years.