Qualified Automatic Contribution Arrangements - QACAs

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DEFINITION of 'Qualified Automatic Contribution Arrangements - QACAs'

Also known as QACAs, these were established under the Pension Protection Act of 2006 as a way to increase workers' participation in self-funded defined contribution retirement plans such as 401(k)s, 403(b)s and 457(b)s. Beginning January 1, 2008, companies that use QACAs automatically enroll workers in the plans at a negative deferral rate, unless they specifically opt-out.

The minimum deferral amount per employee is 3% of his or her compensation for years one and two, increasing by 1% each year. The QACA amount cannot exceed 10% of his or her compensation. QACAs require a minimum employer contribution which can be either a matching or nonelective contribution. Employer contributions can be subject to a two-year vesting period unlike traditional 401(k)s in which employer contributions are immediately vested.

INVESTOPEDIA EXPLAINS 'Qualified Automatic Contribution Arrangements - QACAs'

If a company chooses to adopt a QACA and its defined contribution retirement plan already has an automatic enrollment feature, the employer can choose to have the QACA feature only apply to new employees. Employees must be given adequate notification about the QACA, as well as the ability to opt out completely or to participate at a different, specific contribution level.

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