Automatic enrollment enhancements under the PPA 2006

Automatic enrollment, referred to as negative election plans, is designed to automatically enroll employees in the plan at a contribution rate unless the employees opts-out or changes the rate.

Three terms used in an automatic enrollment:

Treats an employee as having elected a percent of compensation to be deducted from pay, unless the employees opt-out or elects an alternative percent.
Salary deferral contributions are invested in default investments which satisfy the Department of Labor regulations.
Benefits of EACA:
  • Preemption of state wage garnishment laws.
  • Provides fiduciaries with ERISA 404c protection for default investment.
  • Addition of a 90-day period in which participants may opt-out and have contributions returned to them without incurring a 10% tax withdrawal penalty
In addition to enhancing the benefits of an EACA, the PPA of 2006 created a new plan design, the QACA, which offers “safe-harbor protection” from certain non-discrimination testing.
  • Deemed to satisfy ADP and ACP tests.
  • Not subject to top heavy rules.
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    Each employee is defaulted into a Vanguard Target Date Fund. Once an employee logs into the ABG Participant Site, they may change from the Vanguard Target Date fund to a risk-based asset allocation model, or design their own model.

You can learn more about the Pension Protection Act of 2006 by clicking here.

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