The practice of automatically enrolling participants into a 401(k) Plan has been in practice before 2006, but since the Pension Protection Act (PPA) of 2006, it has increased dramatically.

1. Qualified Automatic Contribution Arrangements
1
The practice of automatically enrolling
participants into a 401(k) Plan has been in
practice before 2006, but since the Pension
Protection Act (PPA) of 2006, it has increased
dramatically. According to the Profit Sharing
Council of America’s 53rd Annual Survey
reflecting the 2009 Plan year, 38.4% of plans
have an automatic enrollment feature.
Subsequent to PPA, the IRS published final
guidance on the Qualified Automatic
Contribution Arrangements (QACAs).
In a QACA, Automatic Enrollment rules apply
to all employees who are eligible to
participate in the plan with the exception of
those already participating in the plan or who
have previously declined to participate. If
participants fall into either of these categories
then they would not be subject to the
automatic enrollment provisions.
A QACA is a 401(k) automatic enrollment
arrangement that is not subject to ADP
testing, ACP testing or Top Heavy Testing. In
order to be a QACA, a 401(k) plan must have
an automatic enrollment arrangement
whereby it provides a specified schedule of
automatic deferrals, an employer
contribution and notice to participants
describing the plan provisions. A QACA may
not be adopted midyear and can only be
stopped midyear in limited circumstances.
In order to forgo the testing, the following
requirements must be met:
 Minimum Deferral: The minimum
deferral percentage is 3% for the first
year, 4% the second year, 5% the third
year, and 6% thereafter not to exceed
10%.
 Employer Contribution: The employer
contribution under this arrangement can
be a matching contribution at a rate of
100% for the first 1% of compensation
deferred, plus 50% of the next 5%
deferred, for a maximum match of 3.5%
of a participant’s compensation. The
employer could also choose to make a
non-elective contribution to all eligible
non-highly compensated individuals as
long as the contribution is at least 3% of
an employee’s compensation.
 Vesting: Employer contributions under
this arrangement would have an
accelerated vesting schedule with a
participant being fully vested after two
years of service with their employer.
 Notice: Annual Notice to participants that
tells them about the employer
contribution at least 30 days before the
plan year begins.
The benefits of implementing the QACA are
twofold. First, the Highly Compensated
Employees can defer up to the maximum
amount by law, as long as the plan permits,
and second, it helps an employee actively
save for retirement.
More Information
To learn more about the QACA arrangement
in your Retirement Savings Plan, feel free to
contact us at (866) 560-2431 or
RetirementInfo@CBIZ.com.
Qualified
Automatic
Contribution
Arrangements
Investments and advisory services offered through CBIZ Financial
Solutions, Inc., member FINRA, SIPC and SEC Registered Investment
Adviser, dba CBIZ Retirement Plan Advisory Services. CBIZ Financial
Solutions, Inc. is a subsidiary of CBIZ, Inc. (NYSE Listed: CBZ)