ACA question

[Belgarath]

Had an interesting question this morning. Client with an ACA (not an EACA nor a QACA, and no auto-increase) wants to limit the auto-enrollment to full-time people only. Only applicable guidance I can find is 1.414(w)-1(b)(1) and (e)(3). Under Treasury Regulation 1.414(w)-1(b)(1), and 1.414(w)-1(e)(3), the ACA need not cover all employees in the plan, and a covered employee for these purposes is as defined under the terms of the plan. Assuming the document provides an “other” election, so this should be allowable. Not sure this was an intended consequence in the regulation, but seems to allow what client wants to do. Not a BRF issue either. Anyone ever run into this request?

[R Griffith]

Not necessarily that request, but I have seen the request to have only certain groups have auto enrollment.  I don't see an issue with it as long as the document supports.

[Peter Gulia]

From the Treasury department’s explanation of the proposed rulemaking to interpret Internal Revenue Code § 414A:

II. Section 1.414(w)–1 A.
Employees Covered by the EACA

As explained in section I.B.1 of this Explanation of Provisions, proposed § 1.414A–1 would clarify that, in order for a CODA or salary reduction agreement under section 403(b) to satisfy the automatic enrollment requirements of section 414A, all employees in the plan who are eligible to elect to have contributions made on their behalf under the CODA or pursuant to a salary reduction agreement must be covered by the EACA. Section 1.414(w)–1(b)(1) currently provides that an EACA need not cover all employees who are eligible to elect to have contributions made on their behalf under the applicable employer plan. For consistency with proposed § 1.414A–1, this notice of proposed rulemaking would amend § 1.414(w)–1(b)(1) to clarify that the section 414A requirement to be covered by an EACA overrides the existing rule in the EACA regulations.

https://www.govinfo.gov/content/pkg/FR-2025-01-14/pdf/2025-00501.pdf, at page 3101 [left column].

The proposed rule’s text about that distinction is:

Except to the extent required under section 414A (which applies to plan years beginning after 
December 31, 2024), an eligible automatic contribution arrangement need not cover all employees who are eligible to elect to have contributions made on their behalf under the applicable employer plan.

https://www.govinfo.gov/content/pkg/FR-2025-01-14/pdf/2025-00501.pdf, at page 3103 [right column].

If a plan’s automatic-contribution arrangement need not meet I.R.C. § 414A, a plan sponsor might consider which employees enjoy or suffer a default, and which employees elect deferrals only by an affirmative election.

This is not advice to anyone.
 

[Belgarath]

Ugh. Thanks Peter!

[BG5150]

All that stuff Peter posted is about an EACA.  Not a regular ol' ACA.

[Peter Gulia]

The Treasury’s interpretation is that only an automatic-contribution arrangement designed to meet Internal Revenue Code § 414A (because the arrangement was not established before December 29, 2022 and fits no other exception) need apply to all eligible employees.

An automatic-contribution arrangement that need not meet § 414A might not, in all circumstances, need to apply to every eligible employee.

Isn’t it possible to have an eligible automatic-contribution arrangement to allow a permissible withdrawal for those (less than all) eligible employees who enjoy or suffer the implied-assent election (while not using that EACA to get a later time to distribute or forfeit excess aggregate contributions, if any)?

Further, an automatic-contribution arrangement designed as neither a qualified arrangement nor an eligible arrangement might get no less room to apply to less than all eligible employees.

I have not considered what provisions are within or beyond reliance on an IRS-preapproved document.