PensionMonster

What about a person who was 'reasonably' expected to earn $5,000 (plan imposed limit) in the current year, was allowed to defer, but did not earn the requisite $5,000 in the year. Are all salary deferrals returned as excess because the employee was not eligible? Or can the salary deferrals stay in the plan since it was 'reasonably' expected the person would earn $5,000. What about the match - do they still get that as well? We now know the person did not earn the requisite amount to be eligible before the match contribution is to be made.

So, Austin Powers, I agree the discretionary match is not ACP free. Would you agree that if the discretionary match passes the ACP test (with or without including the SH match, I think it can be done either way) AND a 401(a)(4) nondiscrimination test, such a discretionary match is okay?

So, it sounds like it is possible to have an escalating match if both the ACP and 401(a)(4) nondiscrim test is passed? The context of the question arose with a SH plan that has an enhanced 100% match on the first 4% of deferral. In addition, the plan thought it was satisfying an additional discretionary ACP free match with a 100% match on the next 2% beyond the first 4% of deferral. The match was not more than 4% of compensation and was based on compensation no greater than 6% We had suggested this was an incorrect application of the additional ACP free match formula. However, the current TPA is suggesting it is 'ok' since you end up in the same place as a '6% SH enhanced match.' We suggest that it does not meet the requirements of an enhanced match, but if it passes ACP and 401(a)(4) testing, then okay. .

Is there any rule that prevents a 401k plan from having a discretionary escalating match? If not, do I need to simply pass the ACP test? Or do I also need to pass 401(a)(4) nondiscrimination testing?