FAQs - Auto Enrollment - Can an employer add an automatic contribution arrangement to its existing retirement plan?
Yes. An employer may add an automatic contribution arrangement feature to its plan simply by amending the plan to state that it will use an automatic contribution arrangement. Generally, the amended plan would need to specify:
- 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 eligible automatic contribution arrangement (EACA) or a qualified automatic contribution arrangement, 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 would also need to have employee election forms available for all employees covered by the automatic contribution arrangement.
The IRS has issued sample plan amendments that can be used to add a basic automatic contribution arrangement or an EACA to a 401(k) plan or that can be used by prototype sponsors of SIMPLE IRA plans (using a designated financial institution) to add an automatic contribution arrangement to their plans.