The American Institute of CPAs has written to the Treasury Department and the Internal Revenue Service about proposed regulations for automatic contributions to 401(k) plans, as well as cafeteria plans.

Jeffrey Hoops, chair of the AICPA's Tax Executive Committee, lauded the ability to automatically enroll employees in 401(k) plans, but wants the Treasury and the IRS to clarify what amount should be distributed under Section 414(w) of the Tax Code when an employee elects to contribute an amount in excess of the default contribution level. The AICPA also recommended that the Treasury and the IRS include a grace period for employee notice requirements to new hires who are immediately eligible to participate in a plan.

The AICPA wants to clarify how employees who have not made an affirmative election in a pre-existing plan should be treated when a qualified automatic contribution arrangement is instituted. The final regulations should explicitly address whether the actual deferral percentage and actual contribution percentage tests are satisfied for the entire plan as a result of the QACA, even though not all the plan participants may be covered under the automatic contribution feature, said the AICPA.

In a separate letter to the IRS and the Treasury Department, the AICPA commented on proposed regulations on cafeteria plans. Hoops wants the IRS to reconsider the effect of Section 125 compliance failures, and the assertion that Section 125 is the exclusive means by which an employer can offer employees an election between taxable and nontaxable benefits without the election resulting in gross income. The AICPA believes the assertion is overly broad and should be removed from the regulations before they are finalized.

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