IRS Finalizes Regulations for QACA Safe Harbor

The IRS has finalized regulations addressing the nondiscrimination safe harbor for certain qualified automatic contribution arrangements (QACAs) in defined contribution plans. The regulations also explain how employees automatically enrolled under an eligible automatic contribution arrangement (EACA) can opt out during the first 90 days and obtain a refund of contributions without being subject to the 10 percent early withdrawal tax. The final regulations make some changes and clarifications to the proposed regulations (see Watson Wyatt Insider, December 2007).

Under the safe harbor, sponsors of QACAs generally must provide a notice to all eligible employees explaining the employee’s right to opt out or to elect a different deferral amount or percentage, as well as the default investment. Employers generally must provide the QACA notice to all eligible employees at least 30 days but no more than 90 days before the beginning of each plan year.

The QACA-related final regulations apply to plan years beginning on or after Jan. 1, 2008. The regulations relating to EACAs apply to plan years beginning on or after Jan. 1, 2010.