What is ‘Qualified Automatic Contribution Arrangements – QACAs’
The Pension Protection Act of 2006 introduced qualified defined contribution retirement plans (401(k)s, 403(b)s, and 457(b)s) as a means of increasing employees’ participation in self-funded defined contribution retirement plans. Companies that use QACAs are required to automatically enroll employees in the plans at a negative deferral rate beginning January 1, 2008, unless the employees affirmatively opt out.
During the first and second years of employment, the minimum deferral amount per employee is 3 percent of his or her income, with the amount increasing by 1 percent each year after that. The amount of the QACA cannot be more than 10% of his or her total salary.
In order to participate in QACAs, employers must provide a minimum contribution, which can be either a matching or an unelective payment. While standard 401(k) plans require employer contributions to be vested right away, certain hybrid plans need a two-year vesting time before employer contributions become fully vested.
Explaining ‘Qualified Automatic Contribution Arrangements – QACAs’
It is possible for a corporation to choose to implement a QACA while maintaining an automatic enrollment option in its defined contribution retirement plan. In this case, the employer can elect to have the QACA feature apply solely to new workers. A sufficient amount of notice about the QACA must be provided to employees, together with the option to opt out totally or to participate at a different, more specified contribution level.
‘Qualified Automatic Contribution Arrangements – QACAs’ FAQ
Is QACA a safe harbor?
How does a QACA work?
Qualified automatic contribution arrangements (QACAs) are a type of automatic-enrollment retirement plan that businesses can provide to their workforce. If you choose to participate in an opt-out plan, workers will be automatically enrolled in the plan and will receive a matching contribution until they opt out.
What is the difference between QACA and EACA?
When there are no extra employer contributions or forfeitures allotted in a plan year, a QACA is judged to fulfill the ADP/ACP criteria. If the employer does not choose to make the safe harbor contribution, an EACA may be a viable alternative.
What is a QACA notice?
A QACA allows an employer to automatically enroll eligible employees in a participant-directed plan and begin deducting elective deferrals from their wages if the employees are given adequate notice and make no affirmative election to participate or not participate in the plan after receiving the required notice.
Further Reading
- Trends and New Developments in Automatic Enrollment for Defined Contribution Plans – journals.sagepub.com [PDF]
- 401 (k) Design: Contribution Formula, Plan Eligibility, and Vesting Choices. – search.ebscohost.com [PDF]
