Benefit Resources Blog

Automatic Enrollment can help get employees ready to retire.

• Notice – Employees are notified 30-days prior to the date that deductions from payroll will begin and they will be entered into the plan.
• Opt out paperwork – if the employee does NOT want to have payroll deductions, he must complete a form opting out of the program. Research shows that very few opt out, usually fewer than 10%.
• Deductions begin – The payroll department starts withholding a set amount of compensation for the employee (usually between 3% and 5%), and remitting the contributions to the plan.
• Account established – The participant’s funds are deposited into the plan’s “default” account. This is likely some type of asset allocation mutual fund, or target date mutual fund. No longer is money market considered a reasonable alternative.
• Employer contributions – Employer contributions are optional under most Automatic Enrollment plans. Qualified Automatic Enrollment Arrangements (QACA) carry mandatory employer contributions, and offer some benefits to the employer.
• Making changes – the participant may elect to change the amount of the deferral, or the investment selections as allowed by the plan document and the investment custodian.
• Annual increases to deduction – Some employer are taking this automatic enrollment concept a step further and increasing the participant’s deferral by 1% or 2% per year, up to a cap of 10% of compensation.

• Split enrollment between elective and automatic to avoid short-term employees
• Consider improved participation as an alternative to Safe Harbor

Feature	Automatic Contribution Arrangement (ACA)	Eligible ACA (EACA)	Qualified ACA (QACA)
Negative enrollment of eligible employees	Yes	Yes	Yes
Applies to newly eligible only	Optional	No	Optional
Employer Safe Harbor contribution	Optional (Traditional Safe Harbor)	Optional (Traditional Safe Harbor)	Yes. 3% non-elective, or Match 100% on 1%, 50% on next 5%
Minimum deferral amount	Any %	Any %	At least 3%
Automatic deferral increase	Optional	Optional	Yes (6% by year 3, 10% maximum)
Vesting	Traditional rules	Traditional rules	2-year cliff
Notice requirement	Yes	Yes	Yes
ADP/ACP testing required	Yes (unless Safe Harbor)	Yes (unless Safe Harbor) 6-month correction period	No (if Safe Harbor contributions only)
90-day opt out available to new participants	No	Yes. No 10% penalty, reported on 1099R. Fee may apply.	Yes. No 10% penalty, reported on 1099R. Match is forfeited.
Qualified Default Investment Arrangement	Optional	Yes	Yes