What does QACA represent in retirement plan terminology?

The term QACA stands for Qualified Automatic Contribution Arrangement. This concept is significant within retirement planning as it refers to a specific type of automatic enrollment feature in 401(k) plans. Under a QACA, employees are automatically enrolled in the plan, with a portion of their salary contributed unless they choose to opt-out. This arrangement is designed to increase participation rates in retirement savings plans by making it easier for employees to start saving without having to take proactive steps to enroll.

One of the key benefits of a QACA is that it can also allow for the use of higher automatic contribution rates and may provide streamlined compliance for certain safe harbor provisions, encouraging plan sponsors to adopt these features. By implementing a QACA, employers can foster a culture of retirement savings, ensuring more employees have a path toward financial security in their retirement years.