Opt-out

Working with a start-up 401(k) with the new auto-enrollment feature. Client asked if an email or a text message is an acceptable form of an opt-out. Would this type of election hold up in a DOL audit?

Although Internal Revenue Code § 414A’s condition for some § 401(k) arrangements to provide an automatic-contribution arrangement is recent, that many plans’ documents state provisions for an automatic-contribution arrangement has existed for many years. That might be especially so for a plan stated using IRS-preapproved documents.

ERISA § 404(a)(1)(D) calls a plan’s administrator or other fiduciary to meet its responsibility “in accordance with the documents and instruments governing the plan[.]”

What does this plan’s governing document provide about what is or isn’t a sufficient election?

If the plan’s administrator finds an ambiguity in the plan’s documents, does the plan grant the administrator discretionary authority to interpret the plan?

Further, what does the summary plan description tell a participant about what is or isn’t a sufficient election?

If the plan’s administrator faces choices about what to require or permit, consider whether the administrator or employer would have a practical ability to keep records as ERISA’s title I and the Internal Revenue Code, including I.R.C. § 6001 and regulations under it, require.

For example, one might find it’s impractical to preserve text messages for several years. Some might doubt an ability to preserve emails. And even those who are comfortable preserving records in such a format might prefer to control the form and content of a participant’s election.

Although the Employee Benefits Security Administration may investigate whether a fiduciary administered a plan according to the plan’s governing documents, consider that whether a plan met Internal Revenue Code § 401(a), § 401(k), or § 414A might be the Internal Revenue Service’s examination.

This is not advice to anyone.

The practical problem I see here is that the participant is unlikely to say the right thing.  That's where forms are helpful. They are checking a box next to a statement that says the right thing.  "No contriubtions for me please" is probably not specific enough for benefits records even if anyone knows what was meant.

There should be no problem with electronic elections as long as the plan follows all of the IRS and DOL rules for electronic delivery.  These rules do require an interaction with the participant to document that the participant either elected to receive electronic communications.

There are a lot of rules surrounding electronic delivery, and it is not advisable for an employer to take a DIY approach to implementing collection of participant elections.