Employee Benefit Plans: The 411

Valuable Information on 401ks, Pensions, ESOPs, Form 5500 Preparation + More

Opt-out forms: employees decline to participate in 401(k)

eligible, enrollment, 401k, participationYou’ve got your process figured out – 401(k) benefit packages are given to employees the date they’re hired, or maybe it’s when they become eligible to participate or perhaps you rely on your TPA to communicate to the employee how to enroll when eligible. You collect all the necessary enrollment forms and get participating employees’ payroll deduction setup. Your job is done, right?

Not necessarily.

What about those employees who didn’t want to participate even though they were eligible? Did you collect the enrollment form with “I do NOT wish to participate…” checked and signed by the employee or any other form of support declining enrollment? If you didn’t, there are some risks you’re inviting in your front door that you could have easily avoided!

Understanding automatic enrollment in your 401(k) plan

For example, what if an employee insisted they had intended to participate and had not been properly informed they were eligible? Regardless of the truth in that statement, do you have proof otherwise? If you don’t, you as the employer will have to make a qualified non-elective contribution (QNEC) to the plan on behalf of that employee because of the “missed deferral opportunity.” This will be equal to 50% of the employee’s “missed deferral,” calculated by multiplying the actual deferral percentage for the year of exclusion for the employee’s group in the plan by the employee’s compensation for that year.

If you contribute a matching contribution, the fun doesn’t stop there! You are also required to make a corrective contribution for any matching contribution the employee would have received had they been deferring their missed deferrals.

Does any of this apply to you? Make sure you read the full guidance on this and other types of corrective procedures in Rev. Proc. 2013-12. Might any of this apply to you in the future?

Yes!

This is one simple control you can implement to reduce these risks significantly!

Audrey D. Richards