MATRIX Posted September 17 Posted September 17 Hello All - wanted your thoughts on this issue. Effective 1/1/25 new 401k plan becomes subject to the EACA mandate rules - the plan applied auto enrollment at 3%. A provision in the EACA proposed regulations (pasted below) states that if a participant makes an affirmative election (opts out to 0% or elects 1 or 2%) and remains eligible, then he cannot be re-enrolled unless his affirmative election has been in effect for a period of at least one plan year. This is my understanding. The plan has decided to become a QACA on 1/1/26 and they want to use the initial period (years 1-2) for increases rather than annually each 1/1. So my question is - can the QACA re-enroll these participants with affirmative elections in effect for less than one plan year on 1/1/26 at 3% with the first increase to occur on 1/1/28 the end of the QACA initial period? Can the QACA expiration of election rule override the EACA mandate rules? Thank you! Section 1.414A-1 (iv) (C) Redetermination for employee who remained eligible and made an affirmative election. If, for an entire plan year, no default elective contributions were made solely because the employee made an affirmative election to have contributions made on the employee’s behalf under a cash or deferred election or salary reduction agreement in a different amount (including an election not to have contributions made), then the plan is permitted to provide that the initial period is redetermined so that it begins on any date specified under the plan that is later than the date specified in paragraph (c)(3)(ii)(A)(3) of this section. ERISApedia Example - Example 14.4.10 Assume the same facts as the prior example, except Dave was rehired in 2029. Because he was not ineligible for an entire plan year, the special rule does not apply. When he returns, his default deferrals are at 6% unless he files an affirmative election. A different rule applies if a participant has been under an affirmative deferral election (including an election to defer 0%). The plan can sweep the participant into automatic deferrals starting at the initial period, effectively cancelling their affirmative election. Explaining this rule, the preamble observes: For example, a plan is permitted to be amended to provide that, as of a specific date, the default election will apply to all employees who previously made an affirmative election that has been in effect for a period of at least one plan year to have contributions made on behalf of the employees under the plan at a rate that is below the uniform percentage that applies during an initial period (so that the uniform percentage that applies during the initial period will apply unless the employee makes a new affirmative election). An employer might adopt such an amendment to facilitate an increase in the rate of contributions made on behalf of its employees.
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