Compliance

IRS Explains Automatic Contribution Increase Options

By Rebecca Moore editors@plansponsor.com | August 21, 2013

August 21, 2013 (PLANSPONSOR.com) – The Internal Revenue Service (IRS) has updated a web page explaining retirement plan sponsors’ options for automatically increasing participants’ deferrals.

A plan can automatically increase salary deferral contributions for participants if it has or adopts an automatic contribution arrangement (auto enrollment) feature. Plan sponsors have flexibility over when employees’ contributions will automatically increase and by how much, depending on the plan’s type of automatic contribution arrangement.

Rules differ for basic automatic contribution arrangements, eligible automatic contribution arrangements (EACAs) and qualified automatic contribution arrangements (QACAs). By meeting all QACA requirements, a plan is exempted from the annual actual deferral percentage and actual contribution percentage nondiscrimination testing requirements.

The web page includes a link to Notice 2009-65, which contains two sample amendments for adding a basic automatic contribution arrangement with automatic contribution increases or an eligible automatic contribution arrangement with automatic increases.

The web page is at http://www.irs.gov/Retirement-Plans/Automatic-Contribution-Increases.