Saturday, April 11, 2009

Polly Want A QACA?

If Polly is a Plan Sponsor, then she will need to know about QACA (and EACA).

Automatic enrollment has been a useful tool for increasing the participation levels in the plan. Many times it is simple laziness which keeps an employee from signing up, so having an automatic enrollment - and giving the employee the option to opt OUT has been well received by everyone.

QACA stands for Qualified Automatic Contribution Arrangement and is the Safe Harbor version of the regulations.The minimum employee contribution is 3%, and the minimum contribtion MUST INCREASE to 4%, 5%, and 6% over the next three years. Employers are allowed to set these numbers higher, if desired, but it cannot exceed 10% of compensation. Another feature is that a QACA can increase in the middle of a plan year to coincide with a salary increase or performance appraisal.

The Final EACA (non-safe harbor) regs are interesting because a plan can have several different EACA’s for different groups (bargained and non-collectively bargained, for instance). In addition, the EACA notice must now contain a description of how the monies will be invested in the absence of an employee election, since the old mandate of investing in the QDIA no longer applies.

There are more details, of course, but the theme of the regs is the same: an automatic enrollment provision will increase the visibility of your plan and demonstrate your company’s commitment to their employees.

Tuesday, April 07, 2009

401(k) Audit Lessons

The great majority of 401(k) Plans have less than 100 participants and are not required to have an annual audit. But wouldn’t it be useful to know what kinds of problems are often found at the large end, and how to correct them?

It turns out that the number one problem, as identified by CPA and other Fiduciary audits is: timing of contributions. Not coincidentally, this is a top priority of DOL/EBSA, and on a practical basis it’s really a matter of establishing a time frame that the DOL will accept. The common misperception is that you can wait until the 15th business day of the following month in order to submit contributions, but the true standard is that these monies should be submitted as soon as they can be segregated from the employer’s general assets. Recent experience shows that the DOL is not being very flexible on this, and employers should make every effort to at least meet the 7 day safe harbor rule.

A typical finding is that contributions from weekly or bi-weekly payrolls are only submitted to the Trust once a month. Aside from the fact that participants are not getting an accurate investment return, they are also more savvy and informed than ever and can easily become upset if they miss a positive market move after all the recent negative performance. For those who chose a safe (guaranteed) investment, there is even more sensitivity. We know of a participant who urged the plan sponsor to submit contributions electronically after he figured out that a check was being mailed (and the money not posted for several days after the contribution). Imagine if the company was outside the guidelines!

The DOL has beefed up their staff and is waiting for phone calls on this subject, which will trigger an audit. If you can be sure to submit contributions on a timely basis, you can avoid this expensive and time consuming exercise.