Benefit Insights | Automatic Enrollment Is On The Rise Spring 2019 | Página 2

A NON-TECHNICAL REVIEW OF QUALIFIED RETIREMENT PLAN LEGISLATIVE AND ADMINISTRATIVE ISSUES
In the event that a discretionary company match is offered, escalations, but in no event can the automatic withholding
automatically-enrolled employees’ contributions are matched exceed 10% of annual compensation.
just as they normally would be for employees that voluntarily
participate. Any discretionary contributions follow your plan’s
regular vesting schedule.
ELIGIBLE AUTOMATIC CONTRIBUTION ARRANGEMENT
The Eligible Automatic Contribution Arrangement (EACA)
builds on the basic ACA. All aspects mentioned above also
Unlike the other automatic enrollment arrangements, QACA
plans have a required employer contribution. An employer must
make at least a 100% matching contribution of salary deferrals
up to the first 1% of compensation, plus a 50% matching
contribution on the next 5% of compensation deferred, or a
non-elective contribution equal to 3% of compensation to all
eligible participants. Either of these contributions must be fully
apply to EACA’s, with two primary additions: vested by the time an employee has completed two years of
1. The plan has the option to choose to allow permissible service.
withdrawals for employees that were initially automatically QUALIFIED DEFAULT INVESTMENT ALTERNATIVE
enrolled, but then elected not to participate in the plan.
All automatic enrollment options may elect a Qualified Default
2. A window of 30-90 days may be chosen within the date of Investment Alternative (QDIA). The default fund is utilized when
the first automatic deferral to allow participants who were an employee does not make their own investment election but
automatically enrolled to “opt-out” and withdraw any money is entitled to a contribution in the plan – whether being their
that was already withheld from their pay. Any associated own salary deferrals, company funded contributions, and/or
company match would, in turn, be forfeited. reallocated forfeitures. A QDIA requires an annual notice be
If your EACA plan covers all employees, the deadline to
complete your ADP/ACP nondiscrimination testing and
provided to your employees, summarizing the plan’s QDIA
selection.
withdraw any necessary testing failure refunds without a The purpose of the QDIA is to minimize the risk of large losses
penalty is six months following the close of the Plan year, rather and at the same time provide long-term growth. Choosing a
than two and a half months following the close of a plan year QDIA offers liability relief to an extent for plan fiduciaries. Your
for a non-EACA plan. investment advisor may be able to provide you with more details
QUALIFIED AUTOMATIC CONTRIBUTION ARRANGEMENT
A Qualified Automatic Contribution Arrangement (QACA)
combines automatic enrollment provisions with the IRS’ Safe
Harbor provisions. Thus, QACA plans increase participation
among employees while also making the plan exempt from
certain nondiscrimination testing and allow HCE’s to maximize
regarding what funds constitute a QDIA. While not required by
law for an ACA, EACA, or QACA, most automatic enrollment
plans do elect a QDIA for administrative convenience.
If you are interested, please contact Rea & Associates to see
how automatic features can help boost the retirement savings
of your employees.
their annual 401(k) contributions. QACA provisions require
a minimum of 3% automatic enrollment; however, certain
annual escalations may be necessary such that by year five,
an automatically enrolled employee must have at least a 6%
contribution rate. You may opt to begin year one with 6% as
the automatic enrollment percentage to avoid the required
BENEFIT INSIGHTS NEWSLETTER
SPRING 2019