QACA Safe Harbor Plans: A Game Changer for Businesses

In 2024, many successful businesses are leveraging Qualified Automatic Contribution Arrangements (QACA) Safe Harbor Plans to retain top-tier talent and optimize financial savings. But what exactly is a QACA Safe Harbor Plan?

What Is QACA?

QACA stands for Qualified Automatic Contribution Arrangements. These plans include automatic enrollment and automatic escalation, which simplify retirement savings for employees and provide significant benefits for employers. With the introduction of SECURE 2.0, all new 401(k) plans must include these features, enabling employers to use a different type of safe harbor contribution.

Tax Credits

For businesses with fewer than 100 employees, a new QACA plan in 2024 offers three major tax credits: the automatic enrollment credit, the new plan installation credit, and the employer contribution credit. You can check out our tax credit calculator to find out how much your business can save.

Tax Credit Calculator

Key Features

QACA Safe Harbor Plans include automatic enrollment, starting with at least a 3% deferral rate, and automatic escalation, increasing by 1% annually – maxing out at 10%. Now let’s talk about the real magic, the vesting schedule. Employers can choose between immediate vesting or a two-year cliff vesting schedule, which can either immediately vest employees or vest them after two years of 1,000 hours of service, respectively. If you choose the 2-year cliff as soon as an eligible participant works over 1,000 hours for 2 years they are 100% vested. But if the participant leaves before the 2 years, the unvested portion stays in the plan and can be used to pay expenses or reduce next year’s contribution requirements.

Matching Contribution

Two types of employer contributions are available: a traditional 3% Safe Harbor Non-Elective contribution or a matching formula of 100% on the first 1% of deferrals and 50% on the next 5%, requiring employees to defer at least 6% to receive the maximum match of 3.5%. This can save employers on matching contributions.

Implementing QACA

Implementing a QACA plan is straightforward. Employers need a compliance consultant, a financial professional, and a record keeper to handle the plan setup, asset management, and investment selection. With their guidance, creating a QACA safe harbor plan can be smooth and beneficial for both employers and employees.