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.

Below is a simplified summary of Basic Safe Harbor Match and QACA requirements:

Requirements	Basic Safe Harbor Match	QACA
Match Formula	100% on the first 3% deferred compensation + 50% on the next 2%	100% on the first 1% of deferred compensation + 50% on the next 5%
Minimum Match	4%	3.5%
Testing	Exempt	Exempt
Vesting	100% immediate vesting	2-year cliff vesting schedule
Tax Credits	3 -year startup tax credit	3 -year startup tax credit 3 -year auto-enrollment tax credit

Benefits of the QACA Formula:

Lower Employer Match	Forfeitures	Maximum Deferrals
QACA allows a minimum of 3.5% compared to 4% in traditional Safe Harbor plans.	QACA allows a vesting scheduled and unvested contributions are forfeited back to the plan.	QACA allows business owners to maximize their own 401(k) deferrals.