The IRS has updated the information available on its website concerning automatic enrollment.
The site provides basic information regarding an employer’s obligations if it decides to offer automatic enrollment and deferrals. It also discusses automatic contribution arrangements, eligible automatic contribution arrangements (EACAs) and qualified automatic contribution arrangements (QACAs). And it addresses the investment of employees’ automatically deducted salary deferral contributions.
The IRS also has updated the frequently asked questions through which it provides information about EACAs and QACAs, as well as automatic enrollment arrangements.
The updated FAQs concerning automatic enrollment arrangements address:
- the types of automatic contribution arrangements for retirement plans;
- the notice that must be provided to employees for an EACA or QACA;
- when automatic enrollment contributions can be deducted from employees’ wages; and
- when an employer must provide notice of the retirement plan's automatic contribution arrangement to an employee.
They also discuss whether an employer (1) can add an automatic contribution arrangement to its existing retirement plan and (2) is required to contribute to employees’ retirement accounts if the plan has an automatic contribution arrangement.
If an employer decides to add an automatic contribution arrangement to its plan, generally it would need to specify in the amended plan:
- the plan’s default percentage rate for automatic enrollment contributions;
- the employee’s right to elect not to contribute to the plan;
- the employee’s right to elect to contribute an amount different from the plan’s default percentage rate for automatic enrollment contributions;
- the procedures for how an employee can elect not to contribute or contribute an amount different from the plan’s default percentage rate for automatic enrollment contributions;
- how an employee’s automatic enrollment contributions will be invested if the employee does not make an investment election, if an investment election is permitted by the plan;
- the procedures to be used to give the required automatic contribution arrangement notice to both existing plan participants, if covered, and new employees eligible to join the plan; and
- the additional requirements applicable if the plan chooses to add an EACA or a QACA, both of which generally cannot be added to a plan mid-year.
The employer would then apply the automatic contribution arrangement to the employees as specified in the amended plan. The employer also would need to have employee election forms available for all employees the automatic contribution arrangement covers.
An employer generally is not required to contribute to an employee’s retirement account if the plan has an automatic contribution arrangement, the IRS says. That is, unless it chooses to have a QACA. In that case, the employer must make annual contributions and must state the type and amount of these contributions in the plan. Under a QACA, an employer must make at least a:
1. a matching contribution of 100% of an employee’s contribution up to 1% of compensation, and a 50% matching contribution for the employee’s contributions above 1% of compensation and up to 6% of compensation; or
2. a nonelective contribution of 3% of compensation to all participants, including those who choose to contribute nohing to the plan.
And the updated FAQs also address what happens if a plan allows employees to withdraw any automatic enrollment contributions from the retirement plan.