Generally, an employer isn’t required to contribute to a plan to use an automatic contribution arrangement. However, if an employer chooses to have a qualified automatic contribution arrangement (QACA), then the employer does have to make annual contributions and the plan must specify the type and amount of these contributions. Under a QACA, an employer must make at least a:
- a matching contribution of 100% of an employee’s contribution up to 1% of compensation, and a 50% matching contribution for the employee’s contributions above 1% of compensation and up to 6% of compensation; or
- a nonelective contribution of 3% of compensation to all participants, including those who choose not to contribute any amount to the plan.