Qualified Automatic Contribution Arrangements - QACAs

AAA

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.

BREAKING DOWN '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.

RELATED TERMS
  1. Vesting

    The process by which employees accrue non-forfeitable rights ...
  2. Eligible Automatic Contribution ...

    Also known as EACAs, these were created as part of the Pension ...
  3. Qualified Retirement Plan

    A plan that meets requirements of the Internal Revenue Code and ...
  4. 401(k) Plan

    A qualified plan established by employers to which eligible employees ...
  5. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt ...
  6. 457 Plan

    A non-qualified, deferred compensation plan established by state ...
Related Articles
  1. Taxes

    After-Tax Balance Rules For Retirement Accounts

    Accumulating post-tax assets can work to your advantage. Find out how.
  2. Taxes

    New Retirement Plan Limits For 2011

    New changes to the law can have a huge impact on your nest egg.
  3. Retirement

    3 Reasons To Use An Employer-Sponsored Retirement Plan

    If you aren't participating in your employer-sponsored retirement plan, you're missing out! Learn the benefits.
  4. Taxes

    3 Retirement Account Rules To Know

    Stay up-to-date on regulation amendments to avoid penalties as well as take advantage of new opportunities.
  5. Taxes

    The Basics Of A 401(k) Retirement Plan

    This plan has become one of the most popular retirement options. Find out why.
  6. Savings

    Saver's Tax Credit: A Retirement Savings Incentive

    Here's another reason to put money toward your retirement nest egg.
  7. Retirement

    Voluntary 401(k) Contributions: A Thing Of The Past?

    Contributing to your retirement plan may no longer be voluntary, but automatic enrollment has a number of benefits.
  8. Retirement

    Is Your 401(k) On Track?

    Small adjustments can have a significant impact on your returns. Learn what to watch for.
  9. Budgeting

    8 Reasons To Never Borrow From Your 401(k)

    Find out why dipping into your future savings can have serious consequences.
  10. Entrepreneurship

    401(k) Plans For The Small Business Owner

    If you own a business, this may be the plan for you! Find out about its benefits and eligibility requirements.
RELATED FAQS
  1. Can my IRA be used for college tuition?

    You can use your IRA to pay for college tuition even before you reach retirement age. In fact, your retirement savings can ... Read Full Answer >>
  2. Why are IRA, Roth IRAs and 401(k) contributions limited?

    Contributions to IRA, Roth IRA, 401(k) and other retirement savings plans are limited by the IRS to prevent the very wealthy ... Read Full Answer >>
  3. How do you calculate penalties on an IRA or Roth IRA early withdrawal?

    With a few exceptions, early withdrawals from traditional or Roth IRAs generally incur a tax penalty equal to 10% of the ... Read Full Answer >>
  4. What are the best ways to use your 401(k) without a penalty?

    The best way to use your 401(k) retirement savings account is to take normal distributions after you reach retirement age. ... Read Full Answer >>
  5. Is my IRA protected in a bankruptcy?

    All types of individual retirement accounts, or IRAs, recognized under the federal tax code enjoy substantial protection ... Read Full Answer >>
  6. Can I take my 401(k) in a lump sum?

    Establishing a retirement savings plan during your working years is a necessary part of comprehensive financial planning. ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Election Period

    The period of time during which an investor who owns an extendable or retractable bond must indicate to the issuer whether ...
  2. Shanghai Stock Exchange

    The largest stock exchange in mainland China, the Shanghai Stock Exchange is a nonprofit organization run by the China Securities ...
  3. Dead Cat Bounce

    A temporary recovery from a prolonged decline or bear market, followed by the continuation of the downtrend. A dead cat bounce ...
  4. Bear Market

    A market condition in which the prices of securities are falling, and widespread pessimism causes the negative sentiment ...
  5. Alligator Spread

    An unprofitable spread that occurs as a result of large commissions charged on the transaction, regardless of favorable market ...
  6. Tiger Cub Economies

    The four Southeast Asian economies of Indonesia, Malaysia, the Philippines and Thailand. Tiger cub economy indicates that ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!