Video 16: Encourage Greater Participation with a QACA Safe Harbor




Encourage Greater Participation with a QACA Safe Harbor | Pension Services Inc.


Encourage Greater Participation with a QACA Safe Harbor


QACA Safe Harbor Video

For employers looking to enhance their retirement plan’s participation and encourage employees to save, a Qualified Automatic Contribution Arrangement (QACA) Safe Harbor is an effective tool. By implementing a QACA Safe Harbor, you create a plan that automatically enrolls employees and adjusts contribution rates over time, building a solid foundation for their financial futures.

What is a QACA Safe Harbor?

A QACA Safe Harbor is a specialized 401(k) plan design that automatically enrolls employees at a set contribution rate. Over time, this rate gradually increases to help employees save more as they continue working. The plan also includes a matching contribution from the employer, which makes it highly appealing and encourages employees to stay invested in their financial future.

Key Features of a QACA Safe Harbor

  • Automatic Enrollment: New employees are automatically enrolled at a minimum deferral rate of 3% of their compensation unless they choose to opt out.
  • Annual Contribution Increase: The deferral rate automatically increases by 1% each year, up to a minimum of 6%, helping employees save more without needing to adjust their elections manually.
  • Employer Matching: QACA includes a matching formula—typically, a 100% match on the first 1% of compensation and a 50% match on the next 1% to 6%. This match can be a powerful incentive for employees to stay enrolled and increase contributions over time.
  • 2-Year Cliff Vesting: QACA allows a 2-year vesting schedule for employer contributions, meaning if an employee leaves before completing two years, the employer’s matching contributions are forfeited back to the plan.
  • Qualified Default Investment Option (QDIA): For employees who do not make an investment selection, the plan will direct contributions to a default investment option, typically a target-date fund or balanced portfolio.

Benefits of a QACA Safe Harbor

By implementing a QACA Safe Harbor, employers see higher employee participation rates and greater contribution levels. Automatic enrollment and gradual increases encourage employees to build their retirement savings, while the employer match provides motivation to contribute more actively.

Additionally, QACA Safe Harbor plans benefit employers by waiving the annual ADP/ACP nondiscrimination tests, allowing highly compensated employees to maximize their contributions without restriction.

Setting Up a QACA Safe Harbor

Adding a QACA Safe Harbor to your retirement plan is straightforward but requires specific plan amendments and communication with your employees. You’ll need to ensure all employees understand how the automatic enrollment, contribution escalations, and employer matching work to make the most of the plan’s features.

To help your team reach their retirement goals and build financial security, a QACA Safe Harbor can be a valuable and effective addition. Feel free to contact us to discuss how QACA Safe Harbor provisions can strengthen your retirement plan and encourage greater participation.