Qualified Automatic Contribution Arrangement (QACA)
What it is:
A qualified automatic contribution arrangement (QACA) is a way to automatically enroll employees in a defined contribution plan like a 401(k).
How it works (Example):
For example, assume that you get a new job with an employer that offers a 401(k) plan. If the employer has a QACA, you are automatically enrolled in the 401(k) plan and a certain percentage of your pay is automatically put into your retirement account each pay period. It is your responsibility to opt out of the program.
QACAs also require employers to contribute to the plan, either via a match or some other contribution. Those contributions might have to vest, however. Typically the employer will place 3% of your compensation in the plan during the first year of your employment and then increase that 1% each of the next three years.
The amount you contribute to the plan cannot exceed 10% of your compensation.
Why it Matters:
QACAs are a way to ensure employees get enrolled in defined contribution plans. Defined contribution plans are an automatic and disciplined savings mechanism for people, and the employer also receives certain benefits. It's important to note the employee must continue to opt out of the plan when his or her previous opt-out period expires.
