FAQs - Auto Enrollment - Are there different types of automatic contribution arrangements for retirement plans?

 

Yes, companies may choose different types of automatic contributions arrangements:

  1. The basic automatic contribution arrangement described above
  2. The eligible automatic enrollment arrangement (EACA)

An EACA is a type of automatic contribution arrangement that must uniformly apply the plan's default automatic contribution percentage to all employees after giving them a required notice. EACAs may allow employees to withdraw automatic enrollment contributions (with earnings). To withdrawal contributions, an employee must:

  • elect to withdrawal under the plan terms (within 30 -90 days after the employee's first automatic enrollment contribution was withheld from wages).

Employees are 100% vested in their automatic enrollment contributions.

  1. The qualified automatic enrollment arrangement (QACA).

     

    A QACA is an automatic contribution arrangement with special "safe harbor" provisions that exempts 401(k) plans from annual nondiscrimination tests. The special safe harbor is a schedule of uniform minimum default automatic contribution percentages starting at 3% and gradually increases each year an employee participates. Under a QACA:

    •  an employer must make a minimum of either:
      • 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 to the plan.
    • employees must be 100% vested in the employer's matching or nonelective contributions by two years of service.
    • A QACA may not distribute the required employer contributions in a. due to an employee's financial hardship.

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