There are three types of automatic contribution arrangements for plan sponsors to choose from. Below is a summary of each type of arrangement.
- Automatic Contribution Arrangement (ACA).
Also known as a traditional or basic ACA is the simplest form of auto-enrollment. This type of ACA may be added mid-year. It has no statutory minimum or maximum deferral rate. An escalation provision is optional. Participants that are automatically enrolled are treated as having made an affirmative election.
- Eligible Automatic Contribution Arrangement (EACA).
This type of arrangement has a uniformity requirement. For the EACA to be uniform, the default deferral rate must be a uniform percentage of compensation and must apply to all employees covered by the EACA. In addition, an EACA may permit the delay of failed ADP or ACP tests for 6 months if certain requirements are met. There is also an option to allow for permissible withdrawals of amounts that were automatically contributed (timing restrictions apply).
- Qualified Automatic Enrollment Arrangement (QACA).
This type of arrangement is an automatic contribution arrangement with special safe harbor provisions that exempt the plan from ADP and possibly ACP testing requirements. By definition, a QACA meets the requirements of an EACA as noted above. A QACA does have additional requirements such as:
- A statuary minimum/maximum default deferral rate
- Required automatic escalation
- Required employer contributions – must fully vest after 2 years of vesting service
- The arrangement must cover all participants without an affirmative election
- Notice requirement
Participants are always 100% vested in their automatic contributions.
For additional information on these types of automatic enrollment contributions, you can refer to the IRS website - here.