Help - Search - Members - Calendar
Full Version: Safe harbor match plan with additional discretionary match
BenefitsLink Message Boards > Retirement Plans > 401(k) Plans
moosegirl
We have a 401(k) safe harbor plan with the basic matching formula. Employer is having a good year and is considering adding a discretionay match, retroactive to the beginning of the Plan year. The basic match and the discretionary match total would not exceed the enhanced match limits.

If not for being a safe harbor plan, the plan would be top heavy. Only deferrals and safe harbor matching contributions are being made to the Plan. Would the addition of the discretionary match cause the plan to be top heavy? Is ACP testing required?
Tom Poje
maybe - it depends.
you indicated plan has basic match
so ADP safe harbor is satisfied.
now, all matching contributions must be tested under the ACP test.
The basic match on its own satisfies the ACP safe harbor.
A discretionary match, if limited to 4% of compensation and up to 6% deferred.
you indicated both these conditions are satisfied.
so where does the problem come in?
If you have an eligibility condition on the discretionary match.

example - last day rule, 100% discretionary match provided
HCE receives basic match plus discretionary or a total of
100% of first 3% + 50% of next 2% plus 100% of 4%
NHCE quits and only receives the basic match.
When you combine test under ACP the HCE has received a higher rate and therefore the safe harbor is blown out of the water.
(Note: this is different than if the 3% SHNEC was provided and the only match was discretionary. currently it appears you could have eligibility restrictions. however, under the proposed regs an hours requirement or last day rule will fail safe harbor.
Under the proposed regs an ee who receives 0 match due to an eligibility requirement is still considered 'eligible', and therefore an hce will have received a gr4ater rate of match.)
Brian Gallagher
How does this affect the notice requirement? I thought ALL employer contributions that might be made during the upcoming year had to be in the notice, eg, profit sharing or match.

Some people might have only deferred 5% because of the SH, but might have done more had there been a possibility of more match.
Richard Scheer
The Safe Harbor Notice provided before the Plan Year must have mentioned the possibility of a dicretionary match made for the current year
Archimage
OR refer to the SPD for other types of contributions available.
This is a "lo-fi" version of our main content. To view the full version with more information, formatting and images, please click here.
Invision Power Board © 2001-2012 Invision Power Services, Inc.