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Retirement Topics - Automatic Enrollment

Automatic enrollment allows an employer to automatically deduct elective deferrals from an employee’s wages unless the employee makes an election not to contribute or to contribute a different amount. Any plan that allows elective salary deferrals (such as a 401(k) or SIMPLE IRA plan) can have this feature.

If you’re an employee, your employer must give you the option, before any deferrals are withheld from your wages, to have none withheld or to have a different amount withheld. You may also have the option to withdraw your money within 90 days of the date that the first automatic contribution was made, depending on your employer’s plan.

Types of Automatic Enrollment

(1) Basic automatic enrollment (Automatic Contribution Arrangement or ACA):

  • Employees are automatically enrolled in the plan unless they elect otherwise
  • Plan document specifies the percentage of wages that will be automatically deducted
  • Employees can elect not to contribute or to contribute a different percentage of pay

(2) Eligible automatic contribution arrangement (EACA):

  • Uniformly applies the plan’s default deferral percentage to all employees after giving them the required notice
  • May allow employees to withdraw automatic contributions, including earnings, within 90 days of the date of the first automatic contribution

(3) Qualified automatic contribution arrangement (QACA):

  • Uniformly applies the plan’s default deferral percentage to all employees after giving them the required notice
  • Meets additional “safe harbor” provisions that exempt the plan from annual actual deferral percentage and actual contribution percentage nondiscrimination testing requirements
  • Default deferral percentage starts at 3% and gradually increases to 6% with each year that an employee participates. The default percentage cannot exceed 10%.
  • Required employer contributions. Pick either:
    • matching contribution: 100% match for elective deferrals that do not exceed 1% of compensation, plus 50% match for elective deferrals between 1% and 6% of compensation; or
    • nonelective contribution: 3% of compensation for all participants, including those who choose not to make any elective deferrals.
  • Employees must be 100% vested in the employer’s matching or nonelective contributions after no more than 2 years of service
  • Plan may not distribute any of the required employer contributions due to an employee’s financial hardship

Default investments if employee does not make an election

Employers must choose an investment for employees’ automatically deducted salary deferral contributions. You can limit your liability for plan investment losses by choosing default investments for deferrals that meet certain criteria for transferability and safety, such as a life-cycle fund or balanced funds (QDIA). Your employees must be given an opportunity to change the investment choice.

Additional resources:

Automatic Enrollment Fact Sheet
Revenue Ruling 2009-30 (automatic contribution increases for 401(k) plans)
Notice 2009-65 (sample automatic enrollment plan language for 401(k) plans)
Notice 2009-66 (adding automatic enrollment to SIMPLE IRA plans)
Notice 2009-67 (sample automatic enrollment plan language for SIMPLE IRA plans)
Publication 4674, Automatic Enrollment 401(k) Plans for Small Businesses
Publication 560, Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans)
Retirement Plans FAQs Regarding Automatic Contribution Arrangements (Automatic Enrollment Arrangements)
TD 9447 (final regulations on automatic contribution arrangements)

Page Last Reviewed or Updated: 11-Dec-2014