Saturday, April 11, 2009

Polly Want A QACA?

If Polly is a Plan Sponsor, then she will need to know about QACA (and EACA).

Automatic enrollment has been a useful tool for increasing the participation levels in the plan. Many times it is simple laziness which keeps an employee from signing up, so having an automatic enrollment - and giving the employee the option to opt OUT has been well received by everyone.

QACA stands for Qualified Automatic Contribution Arrangement and is the Safe Harbor version of the regulations.The minimum employee contribution is 3%, and the minimum contribtion MUST INCREASE to 4%, 5%, and 6% over the next three years. Employers are allowed to set these numbers higher, if desired, but it cannot exceed 10% of compensation. Another feature is that a QACA can increase in the middle of a plan year to coincide with a salary increase or performance appraisal.

The Final EACA (non-safe harbor) regs are interesting because a plan can have several different EACA’s for different groups (bargained and non-collectively bargained, for instance). In addition, the EACA notice must now contain a description of how the monies will be invested in the absence of an employee election, since the old mandate of investing in the QDIA no longer applies.

There are more details, of course, but the theme of the regs is the same: an automatic enrollment provision will increase the visibility of your plan and demonstrate your company’s commitment to their employees.