Reduce EACA percentage effective January 1

[WCC]

Five years ago a 401(k) plan implemented an EACA with an auto enrollment of 6%. The plan administrator has decided that 6% is too high for future participants. The administrator would like to lower the percentage for new participants only to 3% effective January 1, 2021 (calendar year plan). The record keeper is a large national vendor (who is also the document provider) states that if they lower the % on January 1, 2021, they must lower all auto enrolled participants to 3%. This includes any participant who was auto enrolled at 6% during the past 5 years. They state that the EACA uniformity rules will not allow new participants to be enrolled at 3% while leaving the existing participants at 6%.

Is the record keeper correct, in that if the EACA % is decreased, it must be decreased for everyone who was ever auto enrolled in order to keep the EACA benefits?

Thank you

[BG5150]

I think it's more of a document issue.  What does the document provider say about doing that?

[WCC]

1 hour ago, BG5150 said:

What does the document provider say about doing that?

The adoption agreement has a check box to apply the percentage to new participants only. However, the service provider states that does not apply to existing EACA arrangements. The basic plan document quotes §1.401(k)-3(j)2. The service providers document group says the rule is based on the EACA uniformity rules of §1.401(k)-3(j)(2)(A) and changing the percentage for future participants is not part of the exceptions listed under §1.401(k)-3(j)(2)(iii). 

(2) Qualified percentage -

(i) In general. A percentage is a qualified percentage only if it -

(A) Is uniform for all employees (except to the extent provided in paragraph (j)(2)(iii) of this section);

[C. B. Zeller]

I don't think the quoted section necessarily applies to an EACA, it comes from the QACA regs. Uniformity for EACA is defined in 1.414(w)-1(b)(2), which references only 1.401(k)-3(j)(2)(iii).

What about 1.401(k)-3(j)(2)(iii)(B), which says that the default percentage may not reduce the contribution rate for any employee?

[WCC]

On 4/28/2020 at 1:20 PM, C. B. Zeller said:

What about 1.401(k)-3(j)(2)(iii)(B), which says that the default percentage may not reduce the contribution rate for any employee?

Thank you for the comment. Their legal group told me that in their opinion that does not apply to this situation. They stated again that all employees who have ever been auto enrolled must be reduced from 6% to 3% to keep the EACA benefit.

I appreciate the help.

[Mike Preston]

Sounds like a programming limitation, not one required by the code or regs.

[BG5150]

6 minutes ago, Mike Preston said:

Sounds like a programming limitation, not one required by the code or regs.

That was my first thought..