Trisports Posted July 19, 2022 Share Posted July 19, 2022 The client thought they were a QACA Safe harbor for several years now – BUT they only matched up to 5% . The formula was 100% up to 3% and then 50% of elective deferrals on the next 2% of compensation. They put in a total of 4% (0.5% more than required for QACA safe harbor) but did not stretch the match up to the required 6%. The vesting was 100% after 2 years of service. Since the client matched more than the required 3.5%, do we need to do anything? Link to comment Share on other sites More sharing options...
C. B. Zeller Posted July 19, 2022 Share Posted July 19, 2022 Did any participant receive less under the formula that was used in operation than they should have under the formula in the document? Presumably the answer is no - the 100% up to 3% plus 50% up to 5% formula is equally or more generous at all contribution levels than the 100% up to 1% plus 50% up to 6% formula. Assuming that's the case, then you don't owe anybody any money, but you still have an operational failure for failure to follow the terms of the plan document. This can be corrected in one of two ways: either pull the extra contributions, adjusted for earnings, back from the participants and put it in an unallocated account where it will be used to fund future employer contributions; or adopt a retroactive amendment to increase the matching formula to the formula that was used in operation. Whether either of these options can be done on a self-correction basis or whether it will have to go through VCP depends on how many years is "several" and whether the error is significant or insignificant. Trisports and Luke Bailey 2 Free advice is worth what you paid for it. Do not rely on the information provided in this post for any purpose, including (but not limited to): tax planning, compliance with ERISA or the IRC, investing or other forms of fortune-telling, bird identification, relationship advice, or spiritual guidance. Corey B. Zeller, MSEA, CPC, QPA, QKA Preferred Pension Planning Corp.corey@pppc.co Link to comment Share on other sites More sharing options...
Trisports Posted July 19, 2022 Author Share Posted July 19, 2022 I think my main issue is: will the IRS take the position that the plan was not a QACA safe harbor because the matching formula did not meet the 401(K)(13) requirements? Because the SH notice listed a match up to 5%, some participants could argue that they would have deferred 6%, in which case we would have a missed deferral opportunity for the deferral part (from 5% to 6%)? Link to comment Share on other sites More sharing options...
C. B. Zeller Posted July 19, 2022 Share Posted July 19, 2022 I can't see any basis for the IRS taking that position. The 100% up to 3% plus 50% up to 5% formula is an enhanced matching formula with respect to a QACA. Free advice is worth what you paid for it. Do not rely on the information provided in this post for any purpose, including (but not limited to): tax planning, compliance with ERISA or the IRC, investing or other forms of fortune-telling, bird identification, relationship advice, or spiritual guidance. Corey B. Zeller, MSEA, CPC, QPA, QKA Preferred Pension Planning Corp.corey@pppc.co Link to comment Share on other sites More sharing options...
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