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IRS Completes Automatic Contribution Regs

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The Internal Revenue Service has published a final rule that applies to employers that want to set up qualified automatic contribution arrangement programs.

Employers that sponsor 401(k) plans can use QACAs to avoid running afoul of antidiscrimination rules.

When employers set up QACA programs, employees must take active steps to opt out of a 401(k) plan to avoid having to contribute to the plan.

The final QACA regulations take effect today and are based on a draft published in November 2007.

IRS officials note in a discussion of comments on the draft that some commenters asked how employers should handle rehired workers, and whether employee “affirmative elections,” or active decisions about plan participation, could have a limited lifespan.

The final regulations now provide “that a plan is permitted to treat an employee who for an entire plan year did not have contributions made pursuant to a default election under the QACA asif the employee had not had such contributions for any prior plan year as well,” officials write in a preamble to the final rule, which appears today in the Federal Register.

A plan also can specifically provide that an affirmative election expires and require employees to make new affirmative elections if they want the prior rates of elective contributions to continue, officials write.

A copy of the automatic contribution arrangement final rule is available here.


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