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What Is a Qualified Automatic Contribution Arrangement (QACA)?
Let me explain what a Qualified Automatic Contribution Arrangement, or QACA, really is. It's a rule set up by the Pension Protection Act of 2006 aimed at getting more workers involved in their own retirement savings through plans like 401(k)s, 403(b)s, and 457 deferred compensation setups. If your employer uses a QACA, they'll automatically sign you up at a deferral rate starting at 3% or higher, and it's on you to opt out if you don't want in.
Key Takeaways on QACAs
As someone who's looked into these plans, I can tell you QACAs are basically automatic-enrollment retirement options from your employer. You're in by default with some matching from the company unless you decide to bail. They come with 'safe harbor' rules that skip the usual actual deferral percentage (ADP) tests. Plus, there's a required schedule where your default contribution starts at 3% and ramps up each year you're in the plan.
How Qualified Automatic Contribution Arrangements (QACAs) Work
Getting people to save for retirement at work has always been a challenge for economists and policymakers. Many companies offer 401(k) or 403(b) plans, but actual sign-ups and contributions stay low. Traditional setups make you opt in, and as Richard Thaler, the Nobel-winning economist, showed, defaults heavily sway decisions. That's why opt-out plans like QACAs exist— you're automatically enrolled, and you have to actively choose to stop.
Remember, not all paycheck deductions are for taxes; some go straight to QACAs or similar auto-enrollment plans. These opt-out systems do boost participation, but they often start with contributions too low for real retirement needs. Employees frequently stick with the default and under-save long-term without reminders that 3% is just the beginning.
Some worry opt-out plans actually reduce overall savings because people assume the low default is sufficient. To fight this, employers might bump your rate by 1% yearly, though that might still fall short of what you need. For a QACA, your employer has to either match 100% on your first 1% of pay plus 50% on the next 5% (up to 6% total), or give everyone a flat 3% non-elective contribution.
Employer contributions in a QACA can vest over up to two years. They must notify you properly, and you can always pick a different contribution level or opt out. QACAs skip ADP testing for nondiscrimination, and if conditions are met, ACP testing too. But you can't pull out required employer contributions for hardships.
QACAs vs. EACAs
The Pension Protection Act lays out two auto-enrollment options: QACAs and Eligible Automatic Contribution Arrangements (EACAs). In an EACA, the default rate applies uniformly after notice, and you can withdraw contributions plus earnings within 30 to 90 days of the first deduction. With EACAs, you're fully vested right away in those auto contributions.
QACAs, on the other hand, give employers safe harbor from ADP and ACP tests if they meet rules like making required matches or non-electives, vesting within two years, and increasing defaults from 3% to at least 6% annually, up to 15% max— that cap jumped from 10% thanks to the 2019 SECURE Act. Other plans without this have to pass those tests to avoid favoring high earners.
Are QACA Contributions 100% Vested?
No, they're not automatically fully vested in a QACA. Employer contributions can take up to two years to vest completely— that's something you need to keep in mind.
Do More People Save for Retirement With QACAs?
Absolutely, QACAs raise participation because of the auto-enrollment— you have to opt out to avoid it. That said, many still end up short on retirement savings by sticking to the low defaults without bumping them up.
What Is an Automatic Contribution Notice?
This is the heads-up your employer gives you about being auto-enrolled in an EACA or QACA. They have to send it 30 to 90 days before the plan year starts, or on your hire date if enrollment kicks in right away.
The Bottom Line
In essence, a QACA is an opt-out plan that auto-enrolls you in retirement savings, but full vesting might take two years. If you're unsure about yours, reach out to HR or your plan admin directly.
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