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Discretionary Matches and Safe Harbor 401(k) Plans


katieinny

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Sorry. After a good night's sleep, I see this was a really unclear question.

What I'm trying to accomplish is to let the owners defer their $18k in 2015. They've customarily thrown $50k into the Plan as a match. The 2014 (and probably 2015) NHCE ADP will prevent them from deferring $18k unless there's a safe-harbor.

The allocation results for them would be roughly the same under a comp based allocation (straight PS) or a deferral based allocation (match). But they'll exceed the (4% comp, 6% deferral) limits and be subject to and fail the ACP test by a lot.

Since all employees are deferring, I'm thinking I can suggest a 3% mandatory contribution and a subject-to-vesting, sky's almost the limit, discretionary Profit-Sharing.

I think I'm answering my own question, now that I type it out. I don't think a straight salary ratio PS spoils anything. As a bonus, Top-Heavy can be satisfied.

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  • 1 month later...

I have a question regarding this topic.

If a Plan Sponsor, at year end, gives a discretionary match that will fall in the ACP Safe Harbor requirement, but the ACP Safe Harbor contribution was not disclosed on the Safe Harbor notice for the Plan Year in question, can the discretionary match still be exempt from ACP testing?

The Plan provided a SH Notice prior to the Plan Year that said the SHBM will be made, but it included language that in addition to the Safe Harbor contribution, the Plan Sponsor may make additional contributions to the Plan and it referred the participant to the Plan’s SPD with a disclaimer that the additional contributions may be allocated in a different manner and subject to a vesting schedule.

Any thoughts on if the additional discretionary match will need to be tested?

Thanks!

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I'm not sure I understand your question.

If you asking if a plan that provides for the basic SH match and a discretionary match that satisfies the ACP SH timely distributed a SH notice that described the basic SH match, but referenced the SPD for information regarding the discretionary match, I don't see a problem as long as the SPD has been provided to all participants. The discretionary match is covered in the SH notice content requirement under 1.401(k)-3(d)(2)(ii)(B). 1.401(k)-3(d)(2)(iii) has the rules for including content by reference to the relevant portion of the SPD and it specifically says it can be done for content described in paragraph (d)(2)(ii)(B).

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  • 2 weeks later...

Yes, but just to be sure we're both on the same page, let me rephrase it.

The Plan Sponsor has a Safe Harbor Basic Match Plan and timely distributed the Safe Harbor Notice for the Plan Year ending 2014.

After year end, they have some extra money and want to allocate an additional discretionary match of 100% of the first 4%.

There was no notice that there would be an additional discretionary match when the 2014 Safe Harbor notice was distributed, but the SH notice did say that additional employer contributions may be made and to refer to the SPD.

The SPD says that the ER may make additional contributions and that they would be subject to the vesting schedule.

Will the additional discretionary match be a Safe Harbor ACP match since it doesn't exceed 4% of comp?

There are no allocation requirements on the additional discretionary match.

If you have any questions on any specifics that i didn't mention, please let me know.

Thanks!

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You stated that no participant will be allocated a discretionary match greater than 4% of such partcipant's compensation. That's one piece of the requirements to avoid the ACP test. Most of the other pieces are in the plan's document.

Does the plan limit the amount of deferrals that will be considered for the additional match to 6% of compensation?

Does this discretionary match have any allocation conditions? Or more accurately, is there any way that an HCE could end up with a higher match than any NHCE if both deferred the same percent of pay?

Does the document spell out whether or not the plan will test the match using current or prior year testing, or does it say "safe harbor - no testing"?

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Does the plan limit the amount of deferrals that will be considered for the additional match to 6% of compensation? No, while the Discretionary Additional Matching condition is selected in the Plan Doc, it does not limit the amount of deferrals that will be considered for the additional match to 6%.

Does this discretionary match have any allocation conditions? Or more accurately, is there any way that an HCE could end up with a higher match than any NHCE if both deferred the same percent of pay? No, only the Plan's Profit Sharing contribution has allocation requirements.

Does the document spell out whether or not the plan will test the match using current or prior year testing, or does it say "safe harbor - no testing"? The Plan says Safe Harbor Plan/ACP test only using current year testing.

So, i suppose that would mean that the additional match is not eligible for the ACP Safe Harbor?

Thanks!

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No, while the Discretionary Additional Matching condition is selected in the Plan Doc, it does not limit the amount of deferrals that will be considered for the additional match to 6%.

Does the plan limit the deferrals that are considered for the discretionary match to some other level? Or does the discretionary match apply to all deferrals with no limit?

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Does the plan limit the deferrals that are considered for the discretionary match to some other level? Or does the discretionary match apply to all deferrals with no limit?

No, it has the blank space where the limit will be written for the elective deferrals that will be considered for the discretionary match, but there isn't a limit written in the blank space.

Thanks!

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Jim, from post #34, the discretionary match applies to all deferrals with no limit. That kills the ACP SH.

Another issue is that post #29 says the client wants to do a 100% match on deferrals not in excess of 4% of comp. The discretionary match has to be allocated under the terms of the plan. As described, the discretionary match applies to all deferrals with no limit.

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Does the document spell out whether or not the plan will test the match using current or prior year testing, or does it say "safe harbor - no testing"? The Plan says Safe Harbor Plan/ACP test only using current year testing.

So, i suppose that would mean that the additional match is not eligible for the ACP Safe Harbor?

Thanks!

Jim, this above bold text, in my opinion, is a very critical item. If the written plan document had said "no testing", then it's possible that the basic document then automatically would apply the necessary requirements to make such discretionary match ACP-free, but since the testing checkbox says "test for ACP" then I think you are likely stuch having to test.

edited to add: but of course, these comments are all made without having the actual document in hand.

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