Use of Discretionary Match in safe harbor 401(k)

[chris]

This post is related to my previous post entitled "3% nonelective contribution issue" . E/er's e/ee's are 1 doc and 8 employees. It appears that the 8 e/ee's will almost certainly not defer. Doc wants to add a matching contribution element to the 401(k) in addition to the 3% nonelective safe harbor such that he can put away as much the rules will allow. I was thinking of having a discretionary match limited by the 4%/6% requirements but which would not be subject to the safe harbor rules as to nonforfeitability, etc... such that the plan would ultimately have the following contributions: 3% nonelective safe harbor, discretionary match, deferral up to maximum percentage and the discretionary PSP (integrated with Social Security). Short of adding new comparability/cross-testing which wouldn't be appropriate since the doc is relatively young I think that's about as far as I can go. Anyone see any issues thus far???

[Tom Poje]

nope. that appears to be about as much as you can do.

assuming 11000 deferral, 8000 match, 6000 due to shnec, that only leaves 15000 left. obviously the only possible improvement would be to go cross tested instead of integrated, but remember that you can not impute disparity on the 3% safe harbor piece.

[rcline46]

I think you cannot do a match! First, you are using the 3% non-elective safe harbor, not a matching safe harbor. Therefore your match must pass the ACP test, and in your example, with no NCEs having a match it will fail.

However, if the match is announced, it is possible that some of the NCEs will contribute and some match may be possible.

[Tom Poje]

under safe harbor plans, if you provide a 3% nonelective you pass ADP test.

Then to pass ACP test, you are allowed to provide a discretionary match (up to 4%) it doesn't matter if there are no NHCEs.

And when you announce the match is only discretionary, it probably won't increase deferral decisions.

[R. Butler]

I am fairly certain you can do an additional matching contribution even if you use the 3% nonelective safe harbor. The additional match would be subject to the "4%/6% requirements" to which Chris refers. See Notice 98-52 Section VI.D. Examples 2-4.

[Medusa]

It was pointed out on another thread that if the 8 NHCE's are definitely not going to contribute, you could think about an enhanced match, which does not have the same caps as a discretionary match.

Here's the other thread:

http://benefitslink.com/boards/index.php?showtopic=11108

[Tom Poje]

the problem with the enhanced match, if I understand the rules,

is that it satisfies the ADP test, but then you have the ACP test, and you would end up failing that - once the match goes above 4%

[Medusa]

In that other thread, I believe it was established that if the enhanced match is the only match, and if it not based on deferrals in excess of 6% of pay, it satisfies ACP safe harbor.

[Tom Poje]

you are of course correct. I misspoke.

the ERISA Outline Book gives a great example.

200% match up to the first 5% deferred.

that will satisfy, because it is not the match that is limited to 6%, but the contributions that are being matched.