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Good afternoon to all, We are setting up a new plan for a controlled group of 5 companies that will probably have 2,000 participants when it's all done. By design, HCEs and Keys are excluded from participating. There will never be a test failure such as ADP, ACP, 410(b), Top Heavy. That's not the issue. The issue is that the owner (one man owns all of it) wants to pick and choose select groups or individuals to whom he will give a discretionary match and/or a discretionary profit sharing contribution according to his pleasure. His idea is that since there are no applicable tests to fail, why not? We feel uneasy about this but can't find anything to hang our hat on. Is this really permissible? Thanks for your thoughts on this.

If this is a breach of protocol I apologize in advance. I first tacked it on to the end of an old thread and then I decided that maybe nobody reads old threads and that maybe I should start it as a new topic. Thank you. Hi to all! I'd like to tack my new question on to this old thread because they related to each other and even though I have read this 5 times I am still not sure how to handle my situation. I have an employer who wants to motivate his employees to defer more and in his ideal world they would defer 15% of pay and he would match 10%. No, for real, I really do have someone this generous! For 2019 he has already distributed a SH Match notice promising the employees dollar for dollar up to 6% of pay - already really generous. He's trying to figure out how to structure a discretionary match on top of the SH for 2019 that would reward employees who put in more than 6% of pay, in such a way that if someone put in 15%, they would end up with a total of 10% in employer match. He understands that at least some if not all of the match would be subject to the ACP test and that if the test fails, refunds might have to be made, and he doesn't care. At first he, and we, were thinking that he could do a discretionary match of 44.44% on deferrals between 6.01% and 15% of pay. For the guy who defers $15,000 on a $100,000 salary, this would get him a $6,000 SH match plus a $4,000 extra match for a total of $10,000. Then we started reading passages about having to calculate the discretionary match on all of the deferrals, not just the percentage over 6% of pay. In that case, the extra match would be 26.66% of all deferrals up to 15% of pay deferred. This would get our $100,000 person the $6,000 in SH Match plus the extra $4,000 in discretionary match for a total of $10,000. However, of course, it would increase the cost of the lesser paid/lower deferring people. I don't think this employer minds doing this, if the rules require it. He just wants to know what to do within legal parameters to achieve his goal. So here we go: 1. Must we structure the discretionary match to include all deferrals from the first dollar? 2. What exactly goes into the ACP test? The discretionary match only, or the total match including the Safe Harbor? We mostly deal with employers who won't even pay a Safe Harbor match, let alone do more, so it just hasn't come up before. Thanks in advance for helpful advice!

I have a question. The Erisa Handbook tells you that you need to combine the match under both the safe harbor formula (basic formula; 100% of first 3%, 50% of next 2%) and the discretionary match to see if it meets the ACP safe harbor requirements. I don't really understand why. Basically I want to know if someone defers 5% and a plan does the basic safe harbor match formula but also wants to do a 100% of the first 4% discretionary match, would ACP testing have to be done or does it meet the ACP Safe Harbor Requirements? I guess my question is do you apply the 6% rule (matching contributions may not be made with respect to elective deferrals in excess of 6% of comp) independently to the discretionary match, or do you have to combine the safe harbor and the discretionary together and then apply the 6% rule?

I administer a 401k plan (not SH) that will be top heavy in the current year (2017) based on last years valuation. Can the Employer amend the plan now for last year (after for the YE) and add a provision to make a discretionary matching contribution for 2016? With the additional matching funds deposited for 2016, the plan would not be top heavy in 2017 and all of the employees not deferring would not get a contribution. Any guidance would be appreciated. THANKS

Does anyone know the actual IRS revenue code that allows for discretionary matching contributions in a 401k plan? Thank you.