QACA (Qualified Automatic Contribution Arrangement)

A QACA (qualified automatic contribution arangement) is a 401k automatic enrollment arrangement provided for in the Pension Protection Act (PPA) of 2006. (See also EACA.) To be a QACA, an automatic contribution arrangement must provide a specified schedule of automatic contributions, an employer contribution, and notices to participants describing the plan provisions. The minimum required deferral amount increases following a participant’s initial period of participation (automatic escalation), but automatic deferrals may never exceed 10% of compensation. For example, automatic deferral percentages may be increased from 3% in the first year to 4% in year two, 5% in year three…up to a maximum 10%.

The QACA plan design provides a safe harbor plan design that exempts 401k plans from having to perform certain cumbersome nondiscrimination tests.