Automatic Enrollment and Initial QDIA Notice
(401(k) Plan)

Summary

Use this Automatic Enrollment and Initial QDIA notice to fulfill various notice requirements for qualified retirement plans that have an auto-enrollment feature. This template includes practical guidance and drafting notes. Certain rules under the Internal Revenue Code and the Employee Retirement Income Security Act (ERISA) address qualified retirement plans that have an automatic enrollment feature, including the following: • QDIA safe harbor: Safe harbor protection for plan fiduciaries in circumstances where funds must be allocated to an investment option in a participant-directed defined contribution plan despite the participant not having instructed the plan on how to invest the funds (such as upon auto-enrollment). ERISA § 404(c)(5) (29 U.S.C. § 1104(c)(5)); 29 C.F.R. § 2550.404c-5; DOL, Field Assistance Bulletin 2008-3 (April 29, 2008). For more information (including information on QDIA notice requirements), see ERISA § 404(c) and QDIA Safe Harbors. • Preemption relief: Preempts state laws that might impede auto-enrollment in retirement plans (e.g., by imposing restrictions or conditions on deducting amounts from employee wages for purposes of making automatic plan contributions) so long as certain conditions are met, including compliance with the QDIA rules and certain notice requirements. ERISA § 514(e) (29 U.S.C. § 1144(e)). • EACA rules: An eligible automatic contribution arrangement (EACA) design permits an auto-enrollment plan to allow eligible employees who are automatically enrolled a short period to reverse any salary deferral contributions made by default without their direction by having the funds distributed from the plan and returned to them. I.R.C. § 414(w); Treas. Reg. § 1.414(w)-1, An EACA design also allows for more lenient timing rules to deliver QDIA notices required upon an employee's eligibility. 29 C.F.R. § 2550.404c-5(c)(3)(i)(B). • QACA rules: A qualified automatic contribution arrangement (QACA) design is a type of safe harbor 401(k) plan that provides for safe harbor nonelective or matching employer contributions to avoid actual deferral percentage (ADP) nondiscrimination testing and, if applicable, actual contribution percentage (ACP) nondiscrimination testing in addition to having an auto-enrollment feature at a minimum contribution rate. I.R.C. §§ 401(k)(13) and 401(m)(12); Treas. Reg. § 1.401(k)-3(j). QACA plans may have an EACA design, but they are not required to. • Secure 2.0 Act auto-enrollment requirement: For plan years beginning on or after January 1, 2025, most newly established cash or deferred arrangements (e.g., 401(k) plans) and 403(b) plans with salary reduction arrangements) will be required to have an automatic enrollment feature consistent with EACA requirements having an initial contribution rate of between 3% and 10% of compensation that increases by 1% in succeeding years up to a cap of between 10% and 15%. Exceptions apply for plans established prior to December 29, 2022, SIMPLE 401(k) plans, governmental plans, church plans, and plans sponsored by employers that have been in existence for less than three years or that have 10 or fewer employees. I.R.C. § 414A (added by Pub. L. No. 117-328, Div. T, § 101). The QDIA, preemption, EACA, and QACA rules each have separate, but similar and often overlapping, notice requirements. Plan administrators are permitted to combine the notices applicable to the specific auto-enrollment plan in a single disclosure. FAB 2008-03, Q&A-8. This template, which is based on an IRS model created in cooperation with the DOL, is designed to satisfy the notice requirements for a hypothetical auto-enrollment plan that (1) is designed as an EACA (allowing auto-enrolled participants to reverse their automatic contributions), (2) is designed as a QACA safe harbor plan providing employer matching safe harbor contributions, (3) has adopted a QDIA, and (4) is eligible for preemptive relief to implement the auto-enrollment feature. This template describes a plan having certain features and needs to be modified for use to accurately describe the terms of a particular plan and supplemented with information about the plan's QDIA. For a more versatile, fully annotated template notice for a QACA plan (whether or not it qualifies as an EACA), see Safe Harbor 401(k) Plan Notice with QDIA Notice (QACA Plan). The notice requirements under the EACA, QACA, and QDIA rules are briefly described below. (The notice requirements to ensure ERISA preemptive relief for auto-enrollment plans are duplicative of the other notice rules). See ERISA § 514(e)(3)(B) (29 U.S.C. § 1144(e)(3)(B)). An EACA plan notice must describe: • Default contribution rate if the employee does not make an affirmative election • Participant's right to elect not to have default contributions made to the plan on their behalf or to have a different amount contributed to the plan • How contributions will be invested absent the employee's investment election • Participant's right to make a permissible withdrawal, if applicable, and the procedures to do so –and– • Any applicable QACA notice requirements I.R.C. § 414(w)(4)(A); Treas. Reg. § 1.414(w)-1(b)(3)(ii). A QACA plan notice must describe: • Type and formula of the safe harbor contributions to be made on behalf of participants (and the plan receiving the contribution if different than the cash or deferral arrangement) • Any other contributions the employer will make based on participants' elective contributions • Type and amount of compensation that may be deferred under the plan • How to make elective deferral contributions and when elections may be made • Plan withdrawal and vesting provisions • Level of elective contributions that will be made on their behalf if the employee does not make an affirmative election • Participant's right to elect not to have default contributions made to the plan on their behalf or to have a different amount contributed to the plan • How contributions will be invested (including, where applicable, absent the employee's direction) –and– • Information on how to obtain additional information about the plan I.R.C. § 401(k)(13)(E); Treas. Reg. §§ 1.401(k)-3(d)(2), 1.401(k)-3(k)(4). A QDIA notice for an auto-enrollment plan must describe: • All events that cause contributions to be directed to the QDIA • The circumstances in which elective contributions will automatically be made for the participant, the default percentage of compensation level for such contributions, and the participant's right to elect not to make elective contributions, to make them at a different percentage level, and/or to direct them to a different investment option • Participant's right to direct investments in their plan account • The material features of the QDIA such as applicable fees, investment objectives, and the risk and return features of the investments • Participant's right to direct any amounts allocated by default to the QDIA to any other investment options offered under the plan and a description of any applicable restrictions, fees, or expenses in connection with such transfer (after the 90-day period during which they are prohibited) –and– • How to obtain more information concerning other investment options under the plan ERISA § 404(c)(5) (29 U.S.C. § 1104(c)(5)); 29 C.F.R. § 2550.404c-5(d). (In addition, the plan must furnish the Section 404a-5 disclosures regarding plan fees, investment options, and other terms pursuant to 29 C.F.R. § 2550.404c-5(c)(4).) EACA, QACA, and QDIA notice requirements must be met both in advance of (or upon) an employee's eligibility and annually. The rules are largely consistent (though not identical), which further facilitates combined disclosure. FAB 2008-03, Q&A-9. EACA and QACA initial notices generally must be furnished a reasonable period prior to initial eligibility (or upon eligibility if advance notice is not reasonable), provided that the employee has a reasonable period of time after receipt to make an alternative election to the default contribution rules of the plan. The IRS deems a 30- to 90-day advance notice window to be reasonable and provides additional relief in certain circumstances where timely notice is not practicable. QDIA initial notices must be furnished at least 30 days before either the employee's eligibility date or the date that their contributions may be invested in the QDIA, but for plans with an EACA design, a later date up to or before the date of plan eligibility is permitted. The annual notice timing requirements are largely similar for all three sets of rules in that they require notice reasonably in advance of the next plan year and a 30- to 90-day advanced notice window is deemed to be reasonable. See Treas. Reg. § 1.414(w)-1(b)(3)(ii) (EACA); Treas. Reg. §§ 1.401(k)-3(d)(3), 1.401(k)-3(k)(4)(iii) (QACA); 29 C.F.R. 2550.404c-5(c)(3) (QDIA). All notices must be drafted in a manner that is understandable by the average employee. For more information on QDIAs, see ERISA § 404(c) and QDIA Safe Harbors and QDIA Checklist. For more information on safe harbor 401(k) plans, see Safe Harbor 401(k) Plan Design and Administration and the other resources in the Safe Harbor 401(k) Plan Resource Kit. For a full listing of key content covering ERISA retirement plan investments, see ERISA Retirement Plan Investment Resource Kit. For a full listing of key content covering retirement plan notification requirements, see ERISA Retirement Plan Notices Resource Kit. For a full listing of key content covering 401(k) and other defined contribution plan compliance, see 401(k) and Other Defined Contribution Plan Compliance Resource Kit.