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Beginning Automatic Withholding

Q. When a 403(b) plan has automatic enrollment, when must the employer start automatic withholding? In a recent webinar, we were told they had to start by the second payroll period. Is this true for 403(b) plans as well? Would it be possible to hold off on starting the automatic withholding at the participant’s request in order to allow more time to complete the forms?

A. If the plan uses an eligible automatic contribution arrangement or a qualified automatic contribution arrangement, the employer must notify all employees who are eligible to participate in the arrangement between 30 and 90 days before the beginning of each plan year. For plans that automatically enroll employees immediately upon being hired (403(b) plans), an employer may give employees the notice on their date of hire. If it is not practical to give the notice before an employee becomes eligible, the plan can still meet the notice timing requirements by:

  • giving notice to the employee before the pay date for the pay period in which the employee becomes eligible; and
  • allowing the employee to make deferrals from any compensation he or she received after becoming eligible.

You need to check the plan to see if there is a 30 or 60 day entry under the new approved 403(b) plans. This will take care of the second payroll issue.