Revolutionizing 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. 

 

Key Features of QACA:

Lower Employer Match
Vesting Schedule
Automatic Increase

QACA allows a maximum 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.

 

  • Forfeitures: Unvested contributions are forfeited back to the plan if employees leave.

Key Takeaway: QACA allows employers to maximize their own 401(k) deferrals. Employers can also reduce costs with lower matching contributions and benefit from an annual $500 tax credit for up to three years. Additionally, unvested employer contributions are forfeited back to the plan if employees leave, further reducing overall costs.

Implementing QACA:

 

1. Evaluate Current Plans: Review existing 401(k) plans to determine if QACA would be beneficial.

 

2. Consult Experts: Seek guidance from your Regional Vice President on QACA implementation.

 

3. Employee Communication: Develop strategies to educate employees about the benefits of QACA.

 

4. Stay Informed: Keep up-to-date with evolving retirement plan regulations and best practices through our website and newsletter.

Contact your Regional Vice President to learn more.

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Trinity Pension Consultants

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