The government really, really, really wants small employers to set up a 401(k) plan for their employees. They have provided tax credits to help cover administrative expenses of up to $5,500 for new plans with under 100 eligible employees who offer an Eligible Automatic Enrollment Arrangement (EACA). They have also offered tax credits of up to $1,000 per eligible employee for up to 5 years for those same companies. It’s the closest thing an employer can come to a “free” plan, with a large percentage of their plan costs covered by taxpayers. Did I mention that they really want employers to set up those plans?

At the same time, most of those plans are required to offer automatic enrollment at a minimum of 3% of pay and escalation by a minimum of 1% per year until employees are deferring 10% of pay – unless they make a positive election to do something different. Automatic enrollment without employer matching contributions is a recipe for disaster. That’s where using the contribution tax credits to turn your EACA into a Qualified Automatic Enrollment Arrangement (QACA) can turn a plan from striving to thriving. By offering matching contributions of only 3.5% of pay, where the first $1,000 per employee is potentially covered by tax credits an employer can greatly increase the chances of their plan succeeding. At ABG we’ve seen scores of employers try to do something nice for their employees by setting up a plan, only to have it fail because they were unwilling to provide any sort of matching contribution. Talk to your Client Relationship Manager or ABG Sales Representative about how to use a QACA to truly enhance the well-being of employees long-term, or ask for our flyer to share this information with a friend. (See our blog post- from January for additional ideas about how to pay for it).