Can we have regular SH match with auto-enrollment

[BG5150]

Plan wants to offer auto-enrollment.  Can I have a basic SH match with it, or does it have to satisfy the QACA match?

[K2]

EACAs are seperate from QACAs so yes.  But a basic SHM is an enhanced QACA anyway, which would allow you to have two year cliff vesting on the match.

[BG5150]

Basic SHM caps at 4%.  QACA match caps at 4.5%

My thoughts are:

EACA/SHM because they can have flexibility with initial rates and escalations --OR--

QACA because they can have 2-yr vesting and the match is only an add'l 0.5%,

I think the client wants to start at 6% rate with 1% escalation, so under EACA it could be:

1: 6%, 2: 7%, 3: 8%, 4: 9%, 5: 10%, 6: 11%, etc

QACA:

1: 6%, 2: 6%, 3: 7%, 4: 8%, 5: 9%. 6: 10%, 7: 10%, etc.

[K2retire]

BG, QACA caps at 3.5% according to my math. 

Our plan switched from traditional SH to QACA to take advantage of the 2 year vesting. But we chose to retain the basic SH match formula. Since that is better than the basic QACA match formula, we could do that.

[BG5150]

Oops.  3.5%!

Investment house is giving them a breakpoint if they have auto-enroll and a "4%" match.  Not sure what that means.  For some reason I was thinking QACA and 4%.  But I knew there's a .5% at the ens of the QACA match so I added up.

It's Friday after a snow day.  I'm not firing on all cylinders.

[BG5150]

Can the QACA escalation go beyond 5 years as long as it's capped at 10%?  Or is that 5th year the high as it goes and stays there?

[WCC]

See point #6 from IRS publication 560. Our document allows to write in an increase beyond year 5. 

Qualified automatic contribution arrangement.    A qualified automatic contribution arrangement (QACA) is a type of safe harbor plan. It contains an automatic enrollment feature, and mandatory employer contributions are required. If your plan includes a QACA, it won't be subject to the ADP test (discussed later) nor the top-heavy requirements (discussed earlier). Additionally, your plan won't be subject to the actual contribution percentage test if certain additional requirements are met. Under a QACA, each employee who is eligible to participate in the plan will be treated as having elected to make elective deferral contributions equal to a certain default percentage of compensation. In order to not have default elective deferrals made, an employee must make an affirmative election specifying a deferral percentage (including zero, if desired). If an employee doesn't make an affirmative election, the default deferral percentage must meet the following conditions.

1. It must be applied uniformly.

2. It must not exceed 10%.

3. It must be at least 3% in the first plan year it applies to an employee and through the end of the following year.

4. It must increase to at least 4% in the following plan year.

5. It must increase to at least 5% in the following plan year.

6. It must increase to at least 6% in subsequent plan years.

 

1 hour ago, BG5150 said:

Investment house is giving them a breakpoint if they have auto-enroll and a "4%" match.  Not sure what that means.

We see this often with the record keepers we use. One of the pricing variables is cash flow. Higher the cash flow the better some vendors price (i.e. lower asset charge). The down side to pricing is the number of small balances auto enrollment creates. Some vendors weigh average account balance more than cash flow when they look at pricing.