Testing ACP Safe Harbor Contributions

[Guest T-BONE]

I am performing an ACP test for a safe harbor plan (safe harbor contribution is the basic safe harbor match) with after-tax contributions (I know, what's the point in being safe harbor with after-tax). I would like to include the safe harbor match in the ACP test to improve test results which I beleive is permissibe under IRS Notice 98-52. Section VIII.F.3. (Special Rules for ACP Test) provides that if the safe harbor plan has after-tax contributions, an employer MAY ELECT to disregard all matching contributions in performing the ACP test. I read that as saying an employer by default would include safe harbor matching contributions in the ACP test. Can someone confirm this understanding??

[Tom Poje]

there is no reason you can't test all match contributions in the ACP test.

however, you have to use current year for test (no prior year testing), and you can't 'shift' deferrals.

[Guest T-BONE]

Thanks for the confirmation. Follow-up question. For a plan with an enhanced match (100% up to 3%, 50% on next 3%) and after-tax, I see the following options for ACP testing: (1) include all match in the ACP test with the after-tax, (2) disregard all match and test only the after-tax, and (3) test the after-tax and match exceeding 4% of compensation. Looking for confirmation, particularly on item 3. Thank you!

[Tom Poje]

any portion of the match exceeding 4% would have to be tested, so I think your option 2 is not correct.

your option 1 would be treating the ACP as if it was not safe harbor, which is fine

option 3 would be treating plan as if it was safe harbor

at least as far as I can tell (and understand)

[Guest T-BONE]

Are you saying that with an enhanced safe harbor match, that you have to test the portion of the safe harbor match that exceeds 4% in the aggregate? Even if you are not matching deferrals in excess of 6%?

I read Notice 98-52 differently. Section VIII.F.3. states that if the plan has after-tax contributions, it must satisfy the ACP test (which would mean including the safe harbor matching contributions in the ACP test) using the current year method.

It goes on to say that in applying the ACP test, an employer MAY ELECT to disregard (1) ALL matching contributions "if the ACP test safe harbor of section VI is satisfied" (section VI provides among other things that the employer can satisfy the ACP safe harbor requirements with an ENHANCED match), OR (2) matching contributions that do not exceed 4% of compensation "if the matching contribution requirement of section V.B.1. is satisfied" (section V.B.1 provides among other things that the plan may satisfy the ADP safe harbor by providing an ENHANCED match).

These are elective rules, and it appears to me that even with an enhanced match, the employer may elect to disregard ALL matching contributions that satisfy the ACP safe harbor rules. Do you agree??

[Tom Poje]

I read and type to fast. nothing wrong with your option 2.

sorry for the confusion.