Automatic enrollment arrangements determine how employees are enrolled in your 401(k) plan and what rules apply. This article explains the three types of arrangements — ACA, EACA, and QACA — how timing works, and how to manage employee opt-outs.
With an automatic enrollment provision, eligible employees are automatically enrolled in your 401(k) plan by a set deadline — either when the plan starts or as they become eligible. Before auto-enrollment begins, employees can opt out or self-enroll and choose their own contribution rate.
If they take no action, they will begin contributing at the plan's default deferral rate as a traditional (pre-tax) 401(k) contribution.
Automatic enrollment cannot be removed from Gusto 401(k) plans. While employees are automatically enrolled, they are not required to contribute — they need to make an active decision not to. Employees can opt out or change their contribution rate at any time.
The main benefit of auto-enrollment is that it gives employees a clear path to retirement savings. For employers, additional benefits include:
Employees start saving for retirement as soon as they are eligible, leading to higher account balances over time
Higher plan participation, which can have a positive impact on compliance testing
Tax advantages, including deductions for employer contributions
A few things to keep in mind:
If you offer an employer match, total employer contributions may increase as more employees enroll
Your default rate may be lower than what an employee would have chosen if they enrolled manually
Auto-enrolled employees can become disengaged and assume the default rate is enough for retirement
There are three types of automatic enrollment arrangements. Your plan's arrangement can affect everything from when your plan can begin to employer contribution requirements.
An ACA is the most basic automatic enrollment provision. The plan document needs to notify employees they will be automatically enrolled unless they elect otherwise, specify the default deferral rate, and explain that employees can opt out or elect a different contribution rate.
Important: Plans established on or after Dec. 29, 2022, cannot use an ACA provision unless they qualify for an exemption to the mandatory automatic provisions (MAP) required under the SECURE 2.0 Act. Gusto Retirement supports ACA only for plans that cannot add an EACA or QACA when first setting up — for example, when converting to Gusto mid-year. Sponsors need to move to an EACA or QACA before the start of their first full plan year with Gusto.
An EACA is similar to an ACA but includes additional notice requirements and two key benefits:
Extended testing correction window: Plans with an EACA have six months after the end of the plan year to correct a failed average deferral percentage (ADP) or average contribution percentage (ACP) test, rather than the standard two and a half months.
90-day refund window: Automatically enrolled participants can request a refund of their contributions within 90 days of their first auto-contribution, which can reduce the number of participants with small balances.
For plans established on or after Dec. 29, 2022, that do not qualify for a MAP exemption, the default deferral rate needs to be at least 3% but no more than 10%, and the plan needs to include automatic escalation that increases the deferral rate by 1% per year until it reaches at least 10% but no more than 15%.
For plans established before Dec. 29, 2022, or those that qualify for at least one MAP exemption, the default deferral rate can be as low as 1%, and automatic escalation is not required.
Most Gusto 401(k) plans are EACA plans.
A QACA is a variation of a safe harbor 401(k) plan that includes automatic enrollment, automatic escalation, and mandatory minimum employer contributions. All Gusto QACA plans also meet EACA requirements, so they include the extended testing correction window and 90-day refund option.
By including safe harbor provisions, QACA plans automatically satisfy certain IRS-required annual compliance tests — including the ADP test and, in some cases, the ACP test and the top-heavy test.
Default deferral rate: Must be at least 3% but no more than 15%.
Automatic escalation: Deferrals need to increase annually until reaching at least 6% and up to 15%. For Gusto plans, the required minimums each year are:
Year 1: 3%
Year 2: 4%
Year 3: 5%
Year 4: 6%
For plans established on or after Dec. 29, 2022, that do not qualify for a MAP exemption, escalation needs to reach at least 10% but no more than 15%.
Safe harbor employer contributions: A QACA plan needs to meet one of the following:
Basic matching formula: 100% match on the first 1% of compensation, plus a 50% match on the next 5%
Enhanced matching formula: At least as generous as the basic match at each deferral level, based on no more than 6% of compensation
Non-elective contribution: At least 3% of each eligible employee's compensation, regardless of whether the employee contributes
Vesting: Unlike traditional safe harbor plans — where all safe harbor contributions vest immediately — QACA plans allow a vesting schedule of up to two years.
Notice requirements: QACA plans need to meet automatic enrollment, safe harbor, and automatic escalation notice requirements.
The table below compares the three automatic enrollment arrangements across key plan features.
ACA
EACA
QACA
Timing
Any time during the plan year
Beginning of the plan year for existing plans
Beginning of the plan year for existing plans. New plans need at least 3 months left in the year.
Employer contributions
Optional
Optional
Required
Auto-enrollment
Required; no minimum deferral rate. After 2025, only plans not subject to MAP can use ACA.
Required; MAP-exempt plans: no minimum. Non-MAP-exempt plans: 3% minimum.
Required; 3% minimum deferral rate.
Auto-escalation
Optional
MAP-exempt: optional. Non-MAP-exempt: required — 1% increase per year to at least 10%, no more than 15%.
MAP-exempt: required — 1% increase per year to at least 6%, no more than 15%. Non-MAP-exempt: required — 1% increase per year to at least 10%, no more than 15%.
Safe harbor
Optional
Optional
Required
90-day refund for auto-enrollment
No
Yes, within 90 days of initial default contribution
Yes, within 90 days of initial default contribution
When automatic enrollment happens depends on whether your plan is new or already active.
Employees who have not made their own contribution election will be automatically enrolled 30 days after they get their auto-enrollment notice.
Employees who become eligible will be automatically enrolled at the plan's default deferral rate if they take no action. Auto-enrollment occurs by the later of two pay periods or two weeks after eligibility requirements are met, though actual timing may vary if you use a payroll provider other than Gusto.
You can review employees' eligibility and enrollment status in the Roster tab of your 401(k) administrator dashboard.
Employees who do not want to contribute have two ways to opt out.
Employees can choose I don't want to participate in the enrollment email they get, or they can sign in to their Gusto Retirement account and change their contribution rate to 0%.
If an employee is unable or unwilling to sign in and wants to opt out, they can provide written notice to the plan administrator. To opt out an employee from your 401(k) administrator dashboard, follow these steps.
Sign in to Gusto and go to Benefits. Under Savings, find 401(k) and select View, then select Manage 401(k)
Sign in directly at the Gusto Retirement sign-in page.
Once you're in your 401(k) administrator dashboard, follow these steps:
Go to Roster.
Select the employee's name.
Select the Opt out from auto-enrollment checkbox.
Select Update.
Important: Keep the employee's written election on file as proof of their decision not to participate. This will be required if the plan is audited.
Once an employee has already been automatically enrolled, an administrator cannot opt them out. The employee needs to sign in to their 401(k) participant dashboard to opt out. Even employees who opt out are still plan participants and should set up their account to access plan information and investment options for any employer contributions they may get.
This content is for informational purposes only and is not intended to be construed as tax advice. Consult a tax professional to determine the best tax-advantaged retirement plan for your situation.