Safe harbor design

[Guest Christie Banks]

I am setting up a new plan. The employer wants to have two matches in the plan - one that satisfies the basic safe harbor match (100% of first 3% and 50% of the next 2%), and one that is a discretionary match. The basic safe harbor match will be 100% vested, and the discretionary match will be subject to a 5 year vesting schedule (20% a year). Does having that second discretionary match cause problems in falling under the safe harbor rules? Will the ADP/ACP tests need to be run?

[MWeddell]

A discretionary match on top of a safe harbor match will not cause the plan to fail the 401(k) / 401(m) safe harbors. Conditions are:

- The annual participant notice accurately describes the potential for the discretionary match.

- Total discretionary match (excluding the safe harbor match) for any participant cannot exceed 4% of pay.

The source for this is IRS Notice 98-52. Notice 2000-3 doesn't modify any of the above rules.