QACA Plan

Employer currently offers a 401(k) Plan, no match.

Vendor has recommended QACA for the 1/1/2023 Plan Year.

Question -

When setting up the QACA, I know you can not elect that the Automatic Deferral percentage does not apply to existing participants.

If a participant is currently deferring 0% and there is a affirmative election showing they declined, does this mean the 3% QACA does not apply to this participant?

The employer has about 40 employees currently not deferring, I am trying to figure out if the addition of the QACA means this group is swept up in the Auto Enrollment unless they make an affirmative election not to participate. 

Thanks

Our document has several choices, I'm sure yours has similar options:

1. Applies to everyone

2.  Applies to anyone with a deferral election less that the automatic threshold

3.  Only those with no election in place

Do you agree with the vendor in that a QACA is the best choice for the Employer and its employees?  Why not just a regular SH match?

2 minutes ago, BG5150 said:

Our document has several choices, I'm sure yours has similar options:

1. Applies to everyone

2.  Applies to anyone with a deferral election less that the automatic threshold

3.  Only those with no election in place

Do you agree with the vendor in that a QACA is the best choice for the Employer and its employees?  Why not just a regular SH match?

First we do not agree a QACA is the best choice. It was suggested because the match was less than the Basic Safe Harbor. However the overall cost difference between 4% and 3.5% is negligible. 

Second, the plan does have the same option as yours.  It specifically  states under Application for Existing Participants - Provision does not apply to existing employees (may not be selected for QACA). so unlike an ACA plan were they could say the Auto Enrollment does not apply to existing employees this is not allowed for a QACA. However the document does allow the choose Non existing Affirmative Election which is the same as your option 3.   So if they use option 3 and the employee elected 0% then the QACA default does not apply, correct? The document states No existing Affirmative Election - so if the employee never completed any documentation to say they did not want to join is the assumption that was his/her affirmative election, or are they treated as never making an election and therefore are enrolled in the QACA. 

People who elected zero have an affifmative election on file.

Call the document provider.  Maybe they can help you get the doc they way you want it.

Also, you won't know the overall cost of the SHM vs QACA.  You could assume, all the auto enrolled people will stay.  But who's to say how many people will sign up if you just put in the basic SHM?

You can always do a 'worst case scenario' where everyone defers enough to get the max match, and, of course 3.5% will be less than 4%.

But any comparison you come up with is pure conjecture at this point.  I really dislike trying to do cost analysis with a match, because it very rarely goes the way you think it maight.

I am not usually a fan of any ACA but I do see the value in the 2-year vesting schedule of a QACA. That is definitely the main draw for my clients - much more than the 0.5% savings.