Eligible Automatic Contribution Arrangement (EACA)

Treats an employee as having elected a percent of compensation to be deducted from pay, unless the employee opts out or elects an alternate percent.

Salary deferral contributions are invested in a default investment (QDIA) which satisfies Department of Labor (DOL) regulations.

Satisfy notice requirement.

Benefits of EACA:

Preemption of state wage garnishment laws.

Provide fiduciaries with ERISA § 404(c) protection for default investment (QDIA) .

Addition of a 90-day period during which employees may elect to opt-out and have contributions returned without incurring a 10% tax withdrawal penalty.

Pre-emption of state wage garnishment laws. Many states have wage garnishment laws which prohibit employers from taking deductions out of an employee’s pay absent an affirmative election by the employee. Prior to the enactment of the PPA, there was debate about whether state garnishment laws applied to employee benefit plans. The PPA resolved this controversy by amending ERISA § 514 which preempts any state law that would otherwise prevent the establishment of an Eligible Automatic Contribution
Arrangement. [ERISA § 514(e)].

90-day opt-out feature under the EACA. The 90-day opt-out feature, allows an employee to opt-out of the Plan within 90-days after the first salary deferral contribution is deducted from the employee’s compensation. If an employee opts-out after salary deferral contributions have been made, then any elective contributions made to the plan (adjusted for gains or losses) will be refunded to the employee.

The amount refunded is included in taxable income in the year distributed and will be reported on Form 1099-R. The amount refunded is not subject to a 10 percent tax penalty for an early withdrawal distribution. Any employer matching contributions will be forfeited.