Qualified Automatic Contribution Arrangements (QACAs)

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Qualified Automatic Contribution Arrangements (QACAs)

Qualified Automatic Contribution Arrangements (QACAs) are employer-sponsored, opt-out retirement plan features created by the Pension Protection Act of 2006 to boost participation in defined contribution plans such as 401(k), 403(b), and 457 plans. Under a QACA, employees are automatically enrolled at a default deferral rate (at least 3%) unless they elect to opt out or select a different contribution rate.

How QACAs work

  • Automatic enrollment increases plan participation by making saving the default choice.
  • Employers must specify a uniform default deferral schedule that starts at a minimum of 3% and increases annually; the default must reach at least 6% in later years and may not exceed 15% in any year (the 15% maximum was established by the SECURE Act of 2019).
  • Employees can change their deferral rate or opt out entirely.
  • Employers must provide advance notice of the automatic enrollment and the employee’s rights (see “Automatic contribution notice” below).

Employer contribution options and vesting

Employers using a QACA must make one of two types of contributions:
* Matching contribution:
* 100% match on the first 1% of employee deferrals, plus
* 50% match on deferrals above 1% up to a specified limit (up to 6% is common), or
* Nonelective contribution:
* A 3% nonelective contribution to all eligible participants regardless of employee deferrals.

Employer contributions under a QACA may be subject to a vesting schedule of up to two years.

Safe-harbor testing relief

QACAs provide safe-harbor relief from certain nondiscrimination tests:
* Exemption from Actual Deferral Percentage (ADP) testing if plan requirements are met.
* Potential exemption from Actual Contribution Percentage (ACP) testing if additional conditions are satisfied.

These safe-harbor protections reduce administrative complexity and the risk of corrective distributions for employers.

QACA vs. EACA (Eligible Automatic Contribution Arrangement)

Both are automatic-enrollment options defined by the Pension Protection Act, but they differ in key ways:
* Vesting
* QACA: Employer contributions can vest over up to two years.
* EACA: Employees are 100% vested in automatic-enrollment contributions.
* Withdrawals
* EACA: May permit employees to withdraw automatic-enrollment contributions (with earnings) during a limited window (no earlier than 30 days, no later than 90 days after the first automatic contribution).
* Safe-harbor testing
* QACA: Provides safe-harbor relief from ADP (and potentially ACP) testing when requirements are satisfied.
* EACA: Does not provide the same QACA safe-harbor matching rules and vesting tradeoffs.

Automatic contribution notice

Employers must notify employees about automatic enrollment:
* Notice must be provided 30–90 days before the start of the plan year (or on the hire date if the plan enrolls on the date of hire).
* The notice must explain default deferral percentages, employer contributions, how to change deferral rates, how to opt out, and any vesting rules.

Common questions

Bottom line

QACAs make saving easier by automatically enrolling employees and offering safe-harbor relief from certain nondiscrimination tests in exchange for employer contributions and limited vesting periods. They boost participation but do not guarantee adequate savings unless default rates or escalation features are set high enough and employees are informed about their choices. For plan-specific details, consult your plan administrator or employer’s human resources department.