Negative-option 401(k) plans automatically enroll employees and make deductions from their pay; employees must opt out to receive their full pay. The IRS gave them the thumbs up several years ago, and the Pension Protection Act of 2006 (PPA) created a new safe harbor from non-discrimination testing for negative-option plans that meet certain standards. The IRS has now proposed regulations addressing negative-option plans. The proposed regs dovetail with final regulations issued by the Department of Labor (DOL) covering qualified default investment alternatives. The regs are proposed to become effective for plan years beginning January 1, 2008, but you may rely on them until final regs are issued.
Qualified Automatic Contribution Arrangements
There are two types of negative-option plans. The proposed regs call negative-option plans that seek the protection of the PPA's non-discrimination testing safe h...(register to read more)