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Understanding Eligible Automatic Contribution Arrangements (EACA)

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What is an EACA?

An Eligible Automatic Contribution Arrangement (EACA) is a feature in a retirement plan, such as a 401(k) plan, that allows employers to automatically enroll employees in the plan at a uniform predetermined contribution rate after giving them a required notice. Employees are 100 percent vested in their automatic enrollment contributions. This feature is designed to encourage retirement savings while still providing employees with flexibility to opt-out or change their enrollment rate within 90 days after the employee’s first automatic enrollment was withheld from wages.

One key aspect of an EACA is that it allows participants a period to elect to not participate in automatic contributions if they choose not to keep them in the plan. These withdrawals, known as permissible withdrawals, are penalty-free but still subject to normal federal income tax.

Rules of an EACA

To comply with IRS regulations, an EACA must meet specific requirements:

  • Uniform Application: The plan must apply the same automatic enrollment percentage to all eligible employees.
  • Advance Notice: Employers must provide employees with clear information about the automatic enrollment process, contribution rates (default and how to change from that), and opt-out procedures (including how and when to withdraw automatic enrollment contributions).
  • Permissible Withdrawal Window: Employees have 90 days from the date of the first automatic contribution to request a withdrawal of those contributions without facing the 10% early withdrawal penalty. However, withdrawn funds will still be subject to normal federal income tax.
  • Default Investment Option: If an employee does not choose investment options, contributions will be invested according to the plan’s default investment selection through the Qualified Default Investment Alternative (QDIA).

How to Request an EACA Distribution

Employees who wish to withdraw their automatic contributions under an EACA can follow these steps:

  1. Update Deferral Rate – Before initiating the withdrawal, employees should set their contribution rate.
  2. Log into the Account Portal – Navigate to the retirement account’s online portal.
  3. Go to Rollover or Withdraw > Cash Withdrawal – This section contains the withdrawal options.
  4. Select the EACA Prompt – Follow the on-screen instructions to complete the withdrawal request.
  5. Submit the Request within 90 Days after the initial deferral  – The request must be completed within 90 days of the first automatic contribution to qualify for the EACA withdrawal.

If more than 90 days have passed, employees generally cannot withdraw contributions unless another withdrawal option applies, such as a hardship withdrawal or a loan (if permitted by the plan).

By understanding EACA rules and withdrawal options, employees can make informed decisions about their retirement savings and manage contributions according to their financial goals.