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Qualified Automatic Contribution Arrangements (QACAs)

What is 'Qualified Automatic Contribution Arrangements - QACAs'

Also known as QACAs, these were established under the Pension Protection Act of 2006 as a way to increase workers' participation in self-funded defined contribution retirement plans such as 401(k)s, 403(b)s and 457(b)s. Beginning January 1, 2008, companies that use QACAs automatically enroll workers in the plans at a negative deferral rate, unless they specifically opt-out.

The minimum deferral amount per employee is 3% of his or her compensation for years one and two, increasing by 1% each year. The QACA amount cannot exceed 10% of his or her compensation. QACAs require a minimum employer contribution which can be either a matching or nonelective contribution. Employer contributions can be subject to a two-year vesting period unlike traditional 401(k)s in which employer contributions are immediately vested.

Explaining 'Qualified Automatic Contribution Arrangements - QACAs'

If a company chooses to adopt a QACA and its defined contribution retirement plan already has an automatic enrollment feature, the employer can choose to have the QACA feature only apply to new employees. Employees must be given adequate notification about the QACA, as well as the ability to opt out completely or to participate at a different, specific contribution level.


Further Reading


Trends and New Developments in Automatic Enrollment for Defined Contribution Plans
journals.sagepub.com [PDF]
… individual, and • the plan must invest automatic enrollment con tributions in a Qualified Default Investment … In addition, for a plan's default fund to qualify as a QDIA, the Section 401 … to the default contribution percentage apply regardless of whether the employee is eligible to make …

401 (k) Design: Contribution Formula, Plan Eligibility, and Vesting Choices.401 (k) Design: Contribution Formula, Plan Eligibility, and Vesting Choices.
search.ebscohost.com [PDF]
… individual, and • the plan must invest automatic enrollment con tributions in a Qualified Default Investment … In addition, for a plan's default fund to qualify as a QDIA, the Section 401 … to the default contribution percentage apply regardless of whether the employee is eligible to make …



Q&A About Qualified Automatic Contribution Arrangements (QACAs)


Are there vesting requirements for employer contributions to a QACA?

Yes, there are vesting requirements for employer contributions to a QACA.

How does the employer contribute to a QACA?

Employer contributions can be either matching or nonelective.

What are the requirements of a QACA?

The minimum deferral amount per employee is 3 percent of compensation for years one and two, increasing by 1 percent each year. The maximum deferral amount cannot exceed 1% of compensation.

What is a QACA?

A QACA is a qualified automatic contribution arrangement.

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