The Internal Revenue Service (IRS) recently released Revenue Ruling 2009-30, Automatic Contribution Increases under Automatic Contribution Arrangements. This Revenue Ruling addressed two issues:

1. Will default contributions to a profit-sharing plan fail to be considered elective contributions merely because they are made pursuant to an automatic contribution arrangement under which an eligible employee’s default contribution percentage automatically increases in plan years after the first plan year of the eligible employee’s participation in the automatic contribution arrangement based in part on increases in the eligible employee’s plan compensation?
2. Will default contributions under an automatic contribution arrangement fail to satisfy the qualified percentage requirement (including uniformity and minimum percentage requirements) relating to a “qualified automatic contribution arrangement” under §401(k)(13) of the Internal Revenue Code of 1986 (IRC) (providing an automatic enrollment nondiscrimination safe harbor) or the uniformity requirement relating to an “eligible automatic contribution arrangement” under IRC §414(w) (permitting 90-day withdrawals) merely because default contributions are made pursuant to an arrangement under which the default contribution percentage for all eligible employees increases on a date other than the first day of a plan year?

In situation 1, the IRS concludes as follows:

Default contributions to a profit-sharing plan will not fail to be considered elective contributions merely because they are made pursuant to an automatic contribution arrangement under which an eligible employee’s default contribution percentage automatically increases in plan years after the first plan year of the eligible employee’s participation in the automatic contribution arrangement based in part on increases in the eligible employee’s plan compensation.

In situation 2, the IRS concludes as follows:

Default contributions under an automatic contribution arrangement will not fail to satisfy the qualified percentage requirement (including uniformity and minimum percentage requirements) relating to a qualified automatic contribution arrangement or the uniformity requirement relating to an eligible automatic contribution arrangement merely because default contributions are made pursuant to an arrangement under which the default contribution percentage for all eligible employees increases on a date other than the first day of a plan year.

Contact Vision Payroll if you have any further questions on automatic contribution increases under automatic contribution arrangements.