EACA: Where to start auto-deferrals after rehire

[BG5150]

A participant was covered under an EACA.  He was int he plan a few years and his auto-deferral went from 3 to 4 to 5%.  Then he left.

When he comes back, I know he is automatically eligible for the plan and enters immediately.

But at what rate?  The initial 3%?  Or his former 5%

[Kevin C]

What does the plan say?  Our VS document has provisions that address what happens to affirmative and automatic elections when a participant terminates and when one rehires.  It can be handled in different ways, but the document should say what happens.  If not, the ERISA Plan Administrator needs to interpret the plan document.

[BG5150]

I checked the plan document and the answer is indeed in there (it was in the BPD).  I also found it in the EOB.

The plan administrator can choose to either start them from the beginning of the process or not.

If the "not" decision,  what does that mean?  If the rates go 3, 4, 5, 6, 7, 8%, what happens if someone leaves at the 4% rate and they come back 3 years later?  Do they enter at the old 4% or at 7%, the rate that would have been in effect had they stayed?

And if restarting the process, who does it affect?  Only those under the ACA or even those who had an election before they left?

Here is the language for the QACA (similar language for EACA):

Administrator Discretion. The Plan Administrator may, on a uniform and nondiscriminatory basis, provide that a new

initial period shall begin for an Employee who is terminated for a full Plan Year and is rehired in a subsequent Plan Year

[Kevin C]

Under the regs, the options for your rehire example would be to either start over at 3% again, or start deferrals on rehire at the 7% rate that would have applied if the participant had stayed.  The initial period starts on the first day the employee makes deferrals under the automatic contribution arrangement [1.401(k)-3(j)(2)(ii)(A)].

Quote

1.401(k)-3(j)(2)(iv) Treatment of periods without default contributions. The minimum percentages described in paragraph (j)(2)(ii) of this section are based on the date the initial period begins, regardless of whether the employee is eligible to make elective contributions under the plan after that date. Thus, for example, if an employee is ineligible to make contributions under the plan for 6 months because the employee had a hardship withdrawal and the 6-month period includes a date as of which the default minimum percentage is increased, then the default percentage must reflect that increase when the employee is permitted to resume contributions. However, for purposes of determining the date the initial period described in paragraph (j)(2)(ii)(A) of this section begins, a plan is permitted to treat an employee who for an entire plan year did not have contributions made pursuant to a default election under the qualified automatic contribution arrangement as if the employee had not had such contributions made for any prior plan year as well.

The default option in our VS document says that an affirmative election to defer (including an election to not defer) ends when the participant terminates employment.  If someone rehires and does not make a new affirmative election, the automatic enrollment provisions apply on rehire and they would start at the beginning rate.  The optional provision is to have an affirmative election remain in effect on rehire and the person is not subject to automatic enrollment.

If the document allows the Plan Administrator to decide how automatic enrollment works on rehire, I would want it put in a written policy that they follow.