This week on our weekly Money Radio (105.3 fm) segment Peter & Brandon Discussed QACA, the Qualified Automatic Contribution Arrangement a less commonly used type of Safe Harbor 401k plan. Which in some cases could be a better match formula and/or discretionary contribution than the older and more well know safe harbor match/contribution options.
- A Third Safe Harbor Option, the QACA
- The QACA is a newer type of safe harbor 401(k) plan. Unlike the others, It includes a requirement for the plan to have an automatic enrollment feature. These work by automatically enrolling any eligible employee into the 401k on a certain date, without the need for them to actively enroll in the plan themselves.
- QACA Match plans include the following special rules:
- The QACA safe harbor matching contribution formula is a 100% match on the first 1% of compensation deferred and a 50% match on deferrals between 1% and 6% (3.5% total).
- The plan’s default auto-deferral rate must start at no less than 3% and increase at least 1% annually to no less than 6% (with a maximum of 10%).
- QACA safe harbor contributions can be subject to up to a 2 year cliff vesting schedule
- There is also a nonelective QACA. It states:
- The nonelective QACA has a contribution of 3% to all participants, including those who choose not to contribute any amount to the plan.
- QACA nonelective 3% contributions can also be subject to up to a 2 year cliff vesting schedule
- Nonelective contributions can also be used to help satisfy Profit Sharing cross-testing. Fulfilling the minimum gateway for 9% profit sharing contributions to owners or other key groups as well as getting a pass for the plan’s nondiscrimination tests.
For more information on if a QACA safe-harbor plan may be appropriate for your company please contact Arcwood or your plan administrator.