“Auto-enrollment” is a plan design feature that takes advantage of the common human tendency towards inertia to help employees save for retirement and other purposes. In plans where auto enrollment is used, employees do not need to make an affirmative election to participate in an employee benefit plan. Instead, eligible employees are enrolled at a pre-established level of contributions and then allowed to “opt-out” of the default election. If they opt out of the default, they can either choose not to participate or choose to participate at a different level.
“Auto-enrollment” contributions (also known as Automatic Contribution Arrangements or “ACAs) may be made to tax-qualified retirement plans such as 401(k), 403(b) or 457(b) plans, and can also be used as a plan design feature in certain health and welfare plans (such as a Health Savings Account or “HSA” plans) and certain employer arrangements that utilize individual retirement accounts (IRAs), such as setting up auto-enrollment for employee deferrals to “SIMPLE” retirement plans.
For retirement plans, because participation and savings rates are higher in plans that feature auto-enrollment, federal law favors these types of features. In fact, there are three different types of ACA arrangements that can be established–a regular automatic contribution arrangement (“ACA”), an eligible automatic contribution arrangement (“EACA”), and a qualified automatic contribution arrangement (“QACA”). Some (but not all) of these special rules are highlighted below (note -different rules may apply for health and welfare/IRA purposes):
Please feel free to contact our Firm if you would like to discuss any of the foregoing information in greater detail. We would welcome the opportunity to consult with you.
© Boutwell Fay LLP 2018, All Rights Reserved.This handout is for information purposes only, and may constitute attorney advertising. It should not be construed as legal advice and does not create an attorney-client relationship. If you have questions or would like our advice with respect to any of this information, please contact us.The information contained in this article is effective as of September 28, 2018.