Certified Plan Sponsor Professional (CPSP) Practice Exam

What is the minimum automatic contribution percentage under a plan using a QACA for the first year when a participant enters the plan?

1. 1%

2. 2%

3. 3%

4. 4%

The correct answer is: 3%

In a Qualified Automatic Contribution Arrangement (QACA), the minimum automatic contribution percentage for new participants entering the plan in the first year is set at 3%. This structure encourages higher participation rates among employees who may otherwise opt out of contributing to their retirement plans. The QACA also incorporates a default contribution feature, where participants are automatically enrolled and defaulted into contributions unless they choose otherwise. Setting the automatic contribution at 3% serves as a baseline that balances the need for employee savings with the goal of making participation accessible. This percentage can be beneficial in incentivizing participation, fostering a culture of saving for retirement while ensuring compliance with regulatory standards. Higher percentages may be used in subsequent years as part of the plan's safe harbor provisions, but for the first year, the automatic contribution floor is established at 3% to provide a solid starting point for retirement savings.