Adding EACA Mid-Year

[austin3515]

I read in one article that it was possible to add an EACA mid-year, but you would only be eligible for the 90 day withdrawal benefit, and not the 6 month penalty free ADP correction period.

That is fine with me, but everyone else seems to say (and really preamble to regs was pretty on point) that you can;t add an EACA mid-year.  Which is really stupid.

Follow-up: Anyway, let's say hypothetically I can't be an EACA for year 1.  So  now what, I have to be an ACA for 6 or 9 months, and then I can switch to an EACA, right?

[Belgarath]

I've always understood that you can add an EACA mid year AS LONG AS it is limited to only those employees who become eligible on or after the date the EACA provision is effective. But then, as you note, the 6 month correction period wouldn't apply. The plan could then be amended for, say, the following plan year to expand it to everyone, and then the 6-month correction period could apply.

As I recall, Sal has a write-up on this - you may want to check it out. I think it was one of those things where the IRS confirmed this interpretation at an ASPPA meeting, so I don't know that everyone would necessarily agree with this interpretation.

[austin3515]

Unbelievable.  I was researching from home.  I read the preamble to the regs which says in no uncertain terms though shall not add an EACA mid-year!!!

I emailed a client and told them we had to do it 1/1 or we couldn't do the EACA this year (They wanted 4/1).  After finding the portion of Sal's book that clarifies that if only newly eligible ees are swept in (which is my situation) it is ok to do.  So I had to email the client and tell them I messed up.  Embarrassing.

But it's still stupid that there is a disincentive to adding auto enrollment covering all employees mid-year.

[Belgarath]

Thou shalt not get any argument from me on that point.

[Doc Ument]

Basically, you need to give the EACA notice before the start of the plan year... which means you can't distribute the notice midyear (except to new entrants), which means you can't start an EACA midyear for everyone, but you can for the participants who would not have gotten the notice until midyear anyway, i.e., the new entrants, as noted by Belgrath. So, you most likely want to either adopt a make-believe EACA for everyone in 2018 (i.e., administratively identical in all specifications as a EACA other than the refund feature, so that you can simply turn on the refund feature at that time), or (2) start the limited new-entrant EACA, and then expand it to a full EACA for 2019. I suppose a third alternative is to have an ordinary ACA for 2018, meaning not even trying to fit it within the framework of a EACA, but then you may have an awkward time amending it to fit within EACA specifications as of 1/1/19, which is why I say you may be better off saying you should pretend you have a EACA from the get-go. (There are some things you can do with a ACA you can't do with a EACA, and if you start with a product's ACA specifications, you may be inadvertently choosing an option not available for that product's EACA, and you don't want to discover that for the first time when it comes time to make the transition.)

 

This general problem is conceivable the result of a poorly worded statute and the Treasury perhaps believes it lacks the authority to provide for starting EACAs midyear. (I merely speculate.)

 

Of course, as alluded to above, your preapproved document might not be able to handle any of these suggestions gracefully, but that is another issue. You are generally permitted to modify preapproved documents to add effective dates, and this is a situation where you might need to provide a different effective date for the refund feature than for the automatic deferral provisions (even if the plan architecture doesn't give you a preapproved option for a special effective date for the refund feature). It gets to be even more fun if you want to have escalation of automatic deferrals starting with your 2018 implementation date, since some documents will say that escalation depends upon the passage of time since the date that automatic deferrals began "under this Arrangement" (which begs that question: if an ACA becomes a EACA in 2019, is the EACA a continuation of the same Arrangement for purposes of continuing the escalation feature, or is it a new, replacement Arrangement that means that escalation starts over at the initial default percentage?). Again, you may want to see what the document says (exactly) in this context before you decide the best way to go forward, i.e., maybe wait to start escalation until 2019. Or not.  Granted, in your situation, it doesn't matter much, but for a mature ACA with escalation that wants to convert to a EACA (or QACA) (or vice versa) without disrupting escalation that has already been underway for years, the specification and interpretation of the plan's escalation provisions can sometimes be problematic.