Tax Credit & EACA

I have a client with an existing 401(k) plan that wants to add EACA for 2021 to take advantage of the pension plan startup tax credit.  My understanding is that they can add EACA for 2021, effective March 03, 2021, even though it won't be for a full year and that EACA will only apply to newly eligible employees.  My question is does 2021 count for the available tax credit since it is NOT a full year?  

Thank you. 

4 hours ago, susieQ said:

My understanding is that they can add EACA for 2021, effective March 03, 2021

Do you have a source on this? EACA requires a notice to participants before the beginning of the year, therefore it can't be adopted mid-year. The earliest you could make it effective at this point would be 1/1/2022 (assuming calendar year).

4 hours ago, susieQ said:

EACA will only apply to newly eligible employees

Not eligible for the tax credit in that case. The EACA has to apply uniformly to all employees unless they have an affirmative election.

14 hours ago, C. B. Zeller said:

Do you have a source on this? EACA requires a notice to participants before the beginning of the year, therefore it can't be adopted mid-year. The earliest you could make it effective at this point would be 1/1/2022 (assuming calendar year).

Not eligible for the tax credit in that case. The EACA has to apply uniformly to all employees unless they have an affirmative election.

Source for adding EACA midyear - - https://benefitslink.com/boards/index.php?/topic/63420-adding-eaca-mid-year/&tab=comments

So does the tax credit carry a requirement that the first plan year for which auto enrollment is added must be a full year? Or that to be eligible for the tax credit, EACA must cover all employees?

That thread cites the EOB as authority for allowing an EACA to be effective mid-year. If you have access to the current edition of the EOB, try looking up that section and see if it's been updated to address this question.

If I had access to the current edition of the EOB, I wouldn't be asking.  Thanks!

On 2/3/2021 at 4:15 PM, susieQ said:

I have a client with an existing 401(k) plan that wants to add EACA for 2021 to take advantage of the pension plan startup tax credit.

Y'know, this must be making the rounds in accounting circles.  I've had a couple of clients inquire about it.  Doing this just to get the credit is so...accountant.  I've told these clients that it would cost...pause...$500 per year.  All have decided against it.