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5500 Preparer's Manual for 2012 Plan Years
The premier resource in the field of Form 5500 preparation, 5500 Preparer's Manual will help you handle the required annual Form 5500 filings for both pension benefits and welfare benefit plans.
The IRS has posted a sample “Automatic Enrollment Notice” on its web site that may be used by sponsors of qualified automatic contribution arrangements (QACAs) that authorize eligible automatic contribution arrangement (EACA) withdrawals to satisfy the applicable notice requirements. The notice may also be used to comply with the notice requirements under ERISA §§404(c)(5) and 514(e)(3) and the recently released default investment regulations (see CCH Pension Plan Guide ¶24,807N ), which must be satisfied in order for a fiduciary to secure relief from liability stemming from default investments and to ensure ERISA preemption of state restrictions on automatic contribution arrangements. In addition, the IRS advises that the sample notice may be helpful in drafting an employee explanation of an automatic contribution arrangement that is not intended to be a QACA or an EACA.
The sample notice requires a general description of the automatic enrollment feature, but also obligates a plan sponsor to address specific issues such as: the employees to whom the plan’s automatic enrollment feature applies, focusing on employees who have pre-existing deferral elections in effect when the arrangement is implemented; and the limits under the arrangement on withdrawals of vested or unvested account funds and the availability of loans and hardship distributions based on the accounts.
Detailed description of QACA matching contribution. The notice requires disclosure of the amount of the matching contribution to be made by the employer under the QACA. Specifically, the notice must explain that the company match is determined by the amount contributed by the employee each pay period and caution employees that they will receive no matching contributions if they elect not to make contributions for the pay period.
CCH Note: Employers maintaining a QACA are required to make either a specified matching contribution on behalf of nonhighly compensated employees (NHCEs), or a nonelective contribution to the 401(k) plan or other DC plan on behalf of each NHCE who is eligible to participate in the plan. The matching contribution formula under a QACA is complicated and potentially confusing. Specifi cally an employer sponsoring such an arrangement is required to make a matching contribution equal to 100 percent of the elective contributions of the NHCE, up to 1 percent of pay, plus 50 percent of elective deferrals that exceed 1 percent of pay, but do not exceed 6 percent of compensation (i.e., deferrals between 2-6 percent of compensation).
The sample notice provides an example that illustrates the practical operation of a QACA matching contribution. Incorporating the example (or modifying it to reflect the plan’s terms) will enable employees to not only ascertain the amount of money that will be contributed to their account, but help them to determine whether to adjust the amount of their own contributions.
The sample notice does not describe a QACA that provides for safe harbor nonelective contributions. The IRS cautions plan sponsors that, in order to reflect actual plan terms, they will need to “add to, subtract from, or otherwise change” the sample notice to the extent the plan’s form and operations differ from the hypothetical QACA described in the sample notice.
The IRS advises that the DOL has agreed to let plan sponsors use the sample notice to comply with notice obligations under ERISA with respect to default investments. However, the notice must include highly plan-specific information, such as a description of the plan’s qualified default investment alternatives (QDIAs), detailing its investment objectives, risk and return characteristics, and fees and expenses. In addition, the notice must describe the circumstances (other than automatic enrollment) under which assets may be invested in the QDIA.
Right to transfer assets.The notice must further explain the right of participants or beneficiaries invested in the QDIA to direct the investment of assets to other investment alternatives under the plan. In addition, the notice must describe any applicable restrictions, fees or expenses that will be assessed in connection with the transfer.
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