Understanding ACA, EACA, and QACA: The Building Blocks of Automatic Enrollment Design

When designing an auto-enrollment feature for a 401(k) or similar retirement plan, the acronyms ACA, EACA, and QACA refer to specific types of automatic contribution arrangements recognized by the IRS and Department of Labor. Each has its own set of rules and advantages for plan sponsors.

1. ACA – Automatic Contribution Arrangement

An ACA is the most basic form of auto-enrollment. Under this design, eligible employees are automatically enrolled in the plan at a default deferral rate (for example, 3%) unless they actively opt out or choose a different rate.

• Key features:

  • Simple setup and broad flexibility.

  • No special notice requirements beyond general plan disclosures.

  • Employers must deposit default contributions into eligible investments (typically a Qualified Default Investment Alternative, or QDIA).

  • Does not automatically provide any additional fiduciary or testing relief for nondiscrimination or top-heavy testing.

When to use: ACA is a good starting point for employers who want to boost participation but don’t want to commit to more complex rules.

2. EACA – Eligible Automatic Contribution Arrangement

An EACA builds on the ACA by adding participant protections and employer advantages if the plan meets additional notice and timing requirements under IRS and DOL rules.

• Key features:

  • Applies the same default deferral rate and auto-enrollment rules as ACA, but employees must receive a written notice at least 30 days before each plan year describing how the automatic enrollment works.

  • Participants can withdraw their automatic contributions (plus earnings) within 90 days of the first automatic contribution — called a “permissible withdrawal.”

  • Plans may allow automatic contribution uniformity across all eligible employees (not just new hires).

  • If structured properly, plans can get extended time to correct certain ADP/ACP testing failures (up to six months instead of 2½ months).

When to use: EACA is often chosen by employers who want to encourage participation while maintaining flexibility and offering employees an “escape hatch” to withdraw automatic contributions early on.

3. QACA – Qualified Automatic Contribution Arrangement

A QACA is the most advanced and fiduciary-friendly form of automatic enrollment. It was created by the Pension Protection Act of 2006, and it combines auto-enrollment with safe harbor provisions that exempt the plan from certain nondiscrimination tests.

• Key features:

  • Requires a minimum automatic deferral rate of:

    • 3% in year 1

    • 4% in year 2

    • 5% in year 3

    • 6% in year 4 and beyond (can go up to 10%)

  • Requires an employer contribution, which can be either:

    • A matching contribution (100% on the first 1% deferred and 50% on the next 5%), or

    • A nonelective contribution of at least 3% for all eligible employees, regardless of participation.

  • Employer contributions must be fully vested after no more than 2 years.

  • Requires an annual written notice similar to EACA.

  • Provides automatic exemption from ADP and ACP nondiscrimination testing.

When to use: QACA is ideal for employers who want to simplify testing requirements, increase plan participation, and strengthen their fiduciary posture under ERISA. It signals a proactive commitment to employee retirement readiness.

Summary Table

Fiduciary Considerations

From a fiduciary standpoint, selecting the right automatic enrollment design involves balancing participation goals, cost, and administrative complexity. Employers must:

• Provide timely notices (for EACA and QACA),

• Ensure that default investments meet QDIA standards, and

• Regularly review contribution rates, opt-out patterns, and plan outcomes.

Adopting an EACA or QACA design can demonstrate a proactive fiduciary process — showing that the employer is aligning plan features with participant best interests, improving savings behavior, and reducing compliance risks.

For support in managing your fiduciary responsibilities, visit Fiduciary In A Box.  

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References:

[1] Internal Revenue Service. (2024). Automatic Enrollment 401(k) Plans for Small Businesses. Retrieved from https://www.irs.gov/retirement-plans/automatic-enrollment-401k-plans-for-small-businesses

[2] U.S. Department of Labor. (2023). Automatic Enrollment 401(k) Plans: What Employers Need to Know. Retrieved from https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/publications/automatic-enrollment-401k

[3] Pension Protection Act of 2006, Pub. L. No. 109–280. Retrieved from https://www.congress.gov/bill/109th-congress/house-bill/4

[4] Employee Benefits Security Administration (EBSA). (2023). Safe Harbor 401(k) Plan Design Options. Retrieved from https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/publications/safe-harbor-401k