Plan is a SH Match (Basic formula) w/ Discretionary Match as well. The discretionary match has a last day/1,000 hour rule, so I'm running ACP testing,.

The regs say I can elect to exclude deferrals that do not exceed 4% of pay. Can I just exclude the Basic SH MAtch altogether from the ACP test? Or should I run the testing, all inclusive, and then subtract for everyones' contribution percentages (obviously if it's less than zero, I would limit to zero).

that sounds correct. there is nothing that says you can't include the safe harbor match, especially if it helps.

Tom, there were two choices in my original post: which one sounds correct?

ah, I see a little better what you are asking.
I'd say the wording of the regs is not real clear. My understanding is that you could only exclude up to 4% of matching contirbutions that satsify the ADP safe harbor.
ERISA Outline Book would agree.

After hearing your answer, and re-reading the EOB, it is clear to me now that indeed, you would simply run the test exluding the SH Match.

Thanks!

Here's the Reg:

A plan that satisfies the ADP safe harbor requirements of
§1.401(k)-3 for a plan year using qualified matching contributions but
does not satisfy the ACP safe harbor requirements of section 401(m)(11)
for such plan year is permitted to apply this section by excluding
matching contributions with respect to all eligible employees that do not
exceed 4% of each employee’s compensation. If a plan disregards matching
contributions pursuant to this paragraph (a)(5)(iv), the disregard must
apply with respect to all eligible employees.”

If not for the EOB, I would never have come to that conclusion. There must have been a Q&A or something...

I think the original notice 98-52 might have been worded a little better, though still not entirely clear.
VIII D deals with the SHNEC (if it was 7%, then since 3% was used for ADP you could use 4% in the ACP)
VIII F3 deals with the match by saying 'exclude match contributions that do not exceed 4% if the match satisifes the safe harbor.'
perhaps if it said 'exclude those safe harbor match contributions that do not exceed 4% if those match satisifes the safe harbor.' it would be clearer, but I think that is what is implied.

in your particular case, that would make sense anyway if you think about.
the ee defers 1%, gets a 1% safe harbor and also gets a 1% discretionary (but you have to be there on the last day, so the discretionary is certainly not safe harbor)
if you excluded all match up to 4%, then you would be excluding some match that is not safe harbor. that makes no sense.

Since when does anyone of this make sense???

We just blindly follow a bunch of innane rules!