Tags: Retirement | automatic | contribution | enrollment | retirement

Auto Enrollment Plan - What Is An Automatic Contribution Arrangement In A Retirement Plan?

By    |   Thursday, 27 August 2015 01:21 AM

Some workers who are eligible and who don't pick a retirement investment salary deferral option are automatically enrolled into a retirement plan by their employers.

Under that arrangement, a predetermined amount of their salary gets put into an individual retirement account by their company.

The Internal Revenue Service has outlined guidelines for automatic contributions on its website. In addition to a basic automatic contribution arrangement, it also suggests two other contribution arrangements: an eligible automatic enrollment arrangement (EACA) or a qualified automatic enrollment arrangement (QACA).

Free Retirement Calculator: When Can You Retire? — Click Here to Find Out

QACA's were established under the Pension Protection Act of 2006. In 2008, they began "to automatically enroll workers in the plans at a negative deferral rate, unless they specifically opt-out," according to Investopedia. Typically, a minimum contribution for deferral is 3 percent in the first year of employment, and that goes up by one percent each year, not exceeding 10 percent.

Noted Investopedia: "QACAs require a minimum employer contribution, which can be either a matching or non-elective contribution. Employer contributions can be subject to a two-year vesting period unlike traditional 401(k)s in which employer contributions are immediately vested."

An EACA works differently. Under that arrangement, the plan’s default percentage contribution is applied uniformly to all employees, according to the IRS.

According to the IRS, most automatic contribution agreement plans automatically deduct those funds from pre-tax wages, thus protecting them from taxable wages or income-tax withholding requirements.

But the IRS said that "401(k) and 403(b) plans that accept designated Roth contributions can specify that the automatic enrollment contributions will be designated Roth contributions, which means they are deducted from an employee’s after-tax wages. An employer must deposit an employee’s automatic enrollment designated Roth contributions into a designated Roth account."

How Soon Can You Retire? Free Test Shows You When — Click Here

© 2019 Newsmax. All rights reserved.

   
1Like our page
2Share
Money-Wire
Some workers who are eligible and who don't pick a retirement investment salary deferral option are automatically enrolled into a retirement plan by their employers.
automatic, contribution, enrollment, retirement
308
2015-21-27
Thursday, 27 August 2015 01:21 AM
Newsmax Media, Inc.
 

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved