401(k) Retirement Plans

QACA

Explore QACA's advantages and implementation strategies for financial advisors and small business owners.

A Qualified Automatic Contribution Arrangement (QACA) is a specific type of automatic enrollment feature within a 401(k) plan that includes Safe Harbor provisions. It automatically enrolls employees into the plan, ensuring a steady stream of contributions and compliance with nondiscrimination testing requirements. Although QACA itself is not a new concept, with the passage of the SECURE Act, employers can receive tax credits of up to $500 per year for three years for implementing auto-enrollment features.

Safe Harbor Formulas:

Basic Match	Plan sponsor matches 100% on the first 3% of deferred compensation + 50% match on the next 2% of deferred compensation.
QACA	Plan sponsor matches 100% on the first 1% of deferred compensation + 50% match on the next 5% of deferred compensation, with a maximum match of 3.5% of salary.
Non-Elective	Plan sponsor contributes at least 3% of each employee’s compensation, regardless of if the employee makes an elective deferral.

Better Understanding the QACA Formula:

Lower Employer Match	Vesting Schedule	Automatic Increase
QACA allows a minimum employer match of 3.5%, compared to 4% in traditional Safe Harbor plans.	Unlike traditional Safe Harbor plans, QACA permits a 2-year cliff vesting schedule on employer contributions.	QACA requires automatic annual increases in employee contributions, promoting higher savings rates.

Benefits to Plan Sponsors:

Maximum Deferrals: Business owners can still maximize their own 401(k) deferrals.

Lower Costs: Potential for decreased employer costs due to lower matching contributions combined with the added benefit of a $500 annual tax credit for up to three years.