MWeddell

There's a temptation in the messages posted above to say that you only need to worry about the $160,000 limit when performing the discrimination testing, but that's not quite true. Ignoring the limit entirely can lead to crediting too many contributions, most commonly a problem with too much match. The most common example is a plan that matches 50% of the first 6% of pay deferred. A participant earns over $160,000, elects to contribute 6% or less of his or her total pay, makes $10,000 of elective deferrals, and is credited with a $5,000 match. If one looks at the situation at the end of the plan year, this participant received a 3.125% of pay match (5000/160,000) whereas all nonhighly compensated employees couldn't have received more than a 3% of pay match (50% times 6%). This results in a discriminatory benefit, right, or feature that violates Treas. Reg. 1.401(a)(4)-4. In this particular example, the employer should have limited the match to a maximum of $4,800 per plan year which would have indirectly enforced the $160,000 limit.

A dollar for dollar match on the first 4% of pay deferred also satisfies the safe harbor contribution. However, there's no IRS guidance on the safe harbor contributions yet. It wouldn't shock me if they said that the safe harbor couldn't be made to an ESOP by analogy to the mandatory disaggregation rules in the 410(B) regulations (which apply to 401(k) via a bunch of cross-references) because ESOP contributions must be tested separately from non-ESOP contributions. So proceed with caution.

Check with your local chapter of the International Society of Certified Employee Benefit Specialists. In suburban Detroit, they've got a 1-day training program titled "Fundamentals of Qualified Benefit Plans & Other Arrangements" for $175 per attendee scheduled for 11/13/98. The program is repeated about once a year. Other chapters may conduct similar training sessions. For continuing education, the ASPA CPC exams sound more on target than the CEBS exams.

The notice requirement is not new, but the IRS hasn't issued any guidance yet on the safe harbor contribution issues. They expect to do so before the end of 1998 still. One hopes they'll issue a model notice. We see little interest in going to the safe harbor contribution among the size clients we talk with (about 500 employees and larger). Reasons for not putting in the contributions are of course the cost and the lower cost of alternatives (more creative allocation of qualified nonelective contributions, splitting the plan into two to improve test results and other testing options, or simply more effective participant communications). Responding to a different comment on this topic, it's possible that one could use the 3% of pay nonmatching contribution in a floor/offset arrangement with a d.b. plan, but I'd wait until IRS guidance comes out before proceeding with anything too aggressive. Potentially, the 3% of pay contribution can satisfy the safe harbor requirement and serve to other purposes too.