What does EACA stand for in the context of retirement plans?

EACA stands for Eligible Automatic Contribution Arrangement. This term refers to a type of automatic enrollment provision that allows employers to enroll employees in a retirement plan, such as a 401(k), with predetermined contribution rates. The key feature of an EACA is that it permits employees to opt-out if they choose not to participate. This arrangement is designed to encourage retirement savings while providing employees with the freedom to decline participation without significant barriers.

The use of EACA is significant because it helps increase overall participation in retirement plans, ultimately leading to higher savings rates among employees. Employers benefit as well, as offering a structured plan can enhance recruitment and retention by promoting employee financial wellness. Additionally, there are specific regulatory benefits related to EACA, such as safe harbor provisions that protect the plan from unintended consequences like excess deferrals.

Understanding EACA is crucial for 401(k) administrators as it impacts how retirement plans are structured and communicated to employees. The other options do not represent the correct terminology used within the context of retirement plans in relation to automatic contributions.