The automatic enrollment arrangement you choose can affect everything from when your plan can begin to employer contribution requirements.

As a plan sponsor, offering a 401(k) plan with an automatic enrollment feature is a great way to increase participation and help your employees save more for retirement.

With an automatic enrollment provision, eligible employees are automatically enrolled in your 401(k) plan by a set deadline – either when the plan starts or as they become eligible. Before the auto-enrollment begins, employees have the option to opt-out or self-enroll and choose their own contribution rate. However, if they take no action, they will begin auto-contributing based on the plan’s default contribution rate as a traditional (or pre-tax) 401(k) contribution.

But, there’s more than one automatic enrollment option, and not all are created equal. The three types of automatic enrollment plans include:

The arrangement you choose can affect everything from when you can begin your plan to employer contribution requirements. Here’s what you should know about the various arrangements available, and how to choose the right one for your business.

An ACA 401(k) plan includes a basic automatic enrollment provision. Employees must be notified that they will automatically be enrolled in the plan unless they elect otherwise and must specify the default deferral rate that will be automatically deducted from their paychecks for contributions to the plan. The document must also explain that employees can choose to opt out or elect a different contribution percentage.

Plans that were established on or after December 29, 2022 cannot have an ACA provision unless they have an exemption to the mandatory automatic provisions (MAP) required under the SECURE 2.0 Act. Plans that don’t meet one of the exemptions must include an EACA or QACA provision.

Note that Guideline only supports ACA for plans unable to add EACA or QACA when first setting up the plan with us (for example, when converting to Guideline mid-year). Sponsors must move to either an EACA or QACA plan before the start of their first full plan year with Guideline.

An EACA plan is similar to a basic automatic enrollment plan but with additional notice requirements.

There are two benefits specific to EACA plans:

For plans established on or after December 29, 2022 who don’t meet an exception to the mandatory automatic provisions (MAP) under the SECURE 2.0 act, the default rate must be at least 3% but not more than 10%. Additionally, they must also include an automatic escalation provision which increases the deferral rate of those currently automatically enrolled each year by 1% until they reach the level stated in the document (at least 10% but no more than 15%).

For plans established prior to December 29, 2022 or who meet at least one of the MAP exceptions, the default deferral rate can be as low as 1% and automatic escalation is not required.

Most 401(k) plans with Guideline are EACA plans.

A QACA plan is a variation of a traditional safe harbor 401(k) plan. QACA plans must include automatic enrollment, automatic escalation, and mandatory minimum employer contributions. Please note that all Guideline plans with a QACA provision are designed to also meet the requirements to be an EACA. This means they will also have the testing extension and refund options detailed above.

By including safe harbor provisions, QACA plans will automatically satisfy certain IRS-required annual compliance testing, including the automatic deferral percentage (ADP) test and, in some cases, the actual contribution percentage (ACP) test and the Top-Heavy test.

For all QACA plans the default deferral rate has to be at least 3% but no more than 10%.

For plans established on or after December 29, 2022 who don’t meet an exception to the mandatory automatic provisions (MAP) under the SECURE 2.0 act, the automatic escalation provision must go to at least 10% but no more than 15%.

For plans established prior to December 29, 2022 or who meet at least one of the MAP exceptions, the automatic escalation provision must go to at least 10% but no more than 15%.
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