Automatic enrollment comparisons for ACA plans

We’ve created a comparison chart for each ACA level.

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There are choices available for automatic enrollment

Do you want to tie your automatic enrollment to a Safe Harbor provision? The Safe Harbor is a required employer contribution that eliminates the requirement for refunds in the event of a failed 401(k) nondiscrimination test.

If you opt for a Safe Harbor you’ll need to decide between Match and Non-Elective.

What do those options mean?

MATCH – Employer will match 100% of deferrals up to 1% of compensation PLUS 50% of deferrals from 2% to 5% of compensation. In other words, a deferral rate of 6% earns a match of 3.5%.

NONELECTIVE – This Safe Harbor consists of an employer contribution to ALL eligible participants in the amount of 3% of compensation.

What vesting schedule do you want?

You also need to choose which vesting schedule to apply to your Safe Harbor contributions. It’s important to note that changes in vesting schedule cannot apply retroactively. Your options are:

- 100% Immediate Vesting

- No vesting until participant has completed 1 year of service; then 100%

- No vesting until participant has completed 2 years of service; then 100%

- 50% Vesting after 1 year of service; 100% after 2 years of service

Effective date of Automatic Deferrals

You’ll need to choose when to start your automatic deferrals. You can begin automatic enrollment at any time; however, beginning on the first day of the plan year offers some flexibility.

Permissible Withdrawals

Participants will receive a 30-day notice informing them of the pending automatic enrollment. So you need to decide if you want to permit withdrawals for those participants who decide they don’t want to participate in automatic enrollment after deferrals have started (This is only available if automatic enrollment begins on the 1st day of the plan year.)

Automatic Deferral Percentage

You’ll need to choose what percentage should be automatically deferred from compensation. 3% used to be the most common percentage, but we now see many automatic enrollment percentages at 5% and 6% (maximum is 10%).If the automatic deferral percentage is tied to a Safe Harbor provision, the minimum deferral percentage is 3%.

Automatic Increases

Would you like the deferral percentage to increase annually to increase retirement savings? If so, what is the percentage increase? Most plans increase in 1% intervals; however, you can choose what you want. The maximum automatic deferral percentage is 10% for most plans. If your Automatic Enrollment is tied to your Safe Harbor, automatic increases are required unless the initial automatic enrollment rate is at least 6%. Maximum deferral percentage is 15%.

Which Participants are Subject to the Automatic Enrollment?

Decide if only new participants are auto enrolled, all current participants who have not entered into a Salary Deferral Election (including an election not to defer under the Plan), or all current participants who have not entered into a Salary Deferral Election that is at least equal to the automatic deferral amount.

Talk to your TPA or FA

There are a lot of differences and options when it comes to an automatic contribution arrangement, so it’s important to work with an experienced TPA or FA to ensure your plan  works for your unique needs.

This information is provided as general guidance and may be affected by changes in law or regulation. It is not intended as accounting or legal advice. If you have questions please reach out to our team.