What is an EACA?

An ACA with a QDIA as a default investment is permitted, but not required, to include a 90-day revocation withdrawal provision in the plan. In that event the arrangement becomes an "eligible automatic contribution arrangement" or EACA.  If the employer opts to permit a 90-day withdrawal, the election to withdraw the contributions made under the EACA must be made within 90 days of the date the first deferral is made for the employee under the arrangement. In other words the 90-day withdrawal period starts as of the employee's first payroll date.

The amount withdrawn is included in the employee's income in the year distributed and is not subject to any early withdrawal penalties.

Including the withdrawal provision makes instituting auto-enrollment even easier because the employer knows the employee's money is not stuck in the plan if he/she chooses to withdrawal it.

Note the EACA rules may apply to 401(k) plans, 403(b) programs and government 457(b) plans.

ACA & EACA Notices

Notice of the arrangement, the employee's right to not defer or defer at a different rate, and an explanation of the QDIA, must be provide to new participants generally no later than their eligibility date.  Thereafter, an annual notice must be provided between 30 and 90 days before the start of each plan year.

What is an QACA?

 

QACA is a safe harbor 401(k) plan

The QACA is a "qualified automatic contribution arrangement." It is basically a traditional safe harbor 401(k) plan with an automatic enrollment provision and some new safe harbor features, courtesy of PPA. This means that if the QACA rules are satisfied the plan is deemed to pass the special 401(k) plan non-discrimination rules, as well as the top heavy rules.

The new safe harbor match formula for a QACA (a 100% match up to 1% of compensation and a 50 % match on the next 5% of compensation) may be used or an enhanced match may be selected. The safe harbor contribution is also available as a 3% non-elective safe harbor contribution.

To add a QACA safe harbor to an existing 401(k) plan, the plan must normally be amended before the beginning of the plan year. Normally, a 12-month plan year is required.

If you stop a safe harbor match midyear, a 30-day advance notice must be given and the plan must be tested for that year to ensure it does not discriminate.

There may be no allocation requirements for the safe harbor contribution, such as employment on the last day or being credited with a certain number of hours.

Vesting for a QACA is another new feature. The plan may have 2-year cliff vesting on the QACA safe harbor contribution, while traditional safe-harbor arrangements have full and immediate vesting. 

The QACA safe harbor contribution is provided to all employees who are eligible to defer, not just for those automatically enrolled.

QACA automatic enrollment escalator
The automatic enrollment deferral percentage for the first year of participation is 3%. The percentage is increased 1% each year until it reaches 6%, and is permitted to go as high as 10%. In addition, the first deferral percentage remains in effect from the day the participant is automatically enrolled until the end of the following plan year.

QACA Notices

Automatic Enrollment Notice

A notice similar to that required for the ACA and EACA must be provided.

Is a QACA required to have a Qualified Default Investment Arrangement (QDIA)?
Though not legally required, QACAs with participant investment direction will most often have a QDIA. As noted above, the QDIA provides employers a safe harbor from fiduciary risk when selecting an investment for a participant or beneficiary who fails to elect his or her own investment. 

Coordinated Notices
PPA provides for several notices relating to automatic contribution arrangements that have similar content and timing requirements, such as the QDIA, auto-enrollment and safe harbor notices. The IRS, in coordination with DOL, permit a single notice (containing the requirements of all the notices) to be used, so long as it satisfies the timing requirements.

QACA Automatic Enrollment

Who do you have to automatically enroll?

 

• New participants that have not made an affirmative election to defer or opt out.
• Those participants defaulted without an affirmative election before the effective date of the QACA must be automatically enrolled.
• The plan may, but is not required to, automatically enroll all other employees who are eligible to participate on the date the QACA becomes effective. If those employees have a contribution election in effect, but the arrangement applies to these employees, the employer may not reduce those participants who are presently deferring more than the QACA requires. 

Contact your Retirement Plan Specialist if you are interested in learning more about any of these arrangements designed to increase participation in your plan.