SHNEC plus Enhanced Match

[Guest KevinP]

There is a company that offers the SHNEC 3% accross the board contribution. The company also offers a $1 for $1 match on the first 6% of deferrals. The match is subject to a 3 year cliff vesting schedule. My question is, does the match need to be tested? I know the SHNEC absolves you of ADP testing, and the 6% is within the confines of an enhanced matching formula, but do you still need to run the ACP test on the 6% match?

Thanks,

Kevin

[austin3515]

There was a whole big discussion on this topic not to long ago. Click on search up in the top left. then just search message boards

[Tom Poje]

no test is needed for the ACP safe harbor if:

match is limited to 6% of deferrals AND

match is limited to 4% of comp.

(so you could do a match at 66.6% up to 6% of comp)

it sounds like you will have to do testing. my understanding is that you can test all match, or just the match contributions above 4%

[Brian Gallagher]

tom,

i thought the 4% cap was for discretionary match amounts.

[Tom Poje]

good point, I had to go back and reread the original post.

since the match is subject to a vesting schedule, it does not meet the definition of a 'match safe harbor' so it would have to be discretionary, and fall under those guidelines.

[Brian Gallagher]

i thought "discretionary" meant the employer did not have to make the match if it did not want to. i never considered it as being a match w/ a vesting schedule.

[Tom Poje]

I agree with your term 'discretionary' - having a match by formula really isn't discretionary.

the actual Notice 98-52 says to satisfy ACP safe harbor provide:

1. Basic Match (as long as no other matches are made)

2. Enhanced Match (as long as no other matches are made)

3. Other Matching Contributions.

Note: the notice refers to them as 'other' rather than 'discretionary' - probably a better term to use. I think every write-up I have seen refers to them as discretionary, but maybe that is my casual reading. Maybe they used the term 'additional'

To satisfy 1 or 2, either of them have to be a 'safe harbor match', and this is defined in IV H as being 'nonforfeitable'

[Brian Gallagher]

i thought, though, with the non-elective contribution, the match formula was a non-issue.

[Archimage]

If you are using a 3% SHNE, a 4% discretionary match can be used and can be subject to vesting.

[Tom Poje]

not really, or sort of...

to satisfy ADP safe harbor you provide

1. Basic Match

2. Enhanced Match

3. Nonelective

ACP is satisfied if you provided 1 or 2. (watching out for the 6% limit on the enhanced match)

The nonelective is not listed among those items that satisfy ACP safeharbor.

If you provide no match, that is like (at least the way I interpret it) an 'additional' match of 0. Or, put another way, there is no match, so there is no ACP test, so you don't have to worry about it.

By the way, if you have to test match, you must use current year method.

[Brian Gallagher]

so let me get this right:

with a 3% (or more?) n-e contrib, the plan can have up to a 4% match whether or not the plan must make it?

[Archimage]

I disagree. I attended a CPE seminar concerning safe harbor. The example in the mateials given to us from the IRS rep. gives a situation where a 3% SHNE is being used. A 4% discretionary match is also given that is 100% vested after three years of service. The example states that the match does satisfy the matching limitations of section VI.B.3.

I also posed this question to Rich Hochman at another seminar and he concurred.

[Guest Richard Scheer]

A matching contribution will satsify the ACP Safe Harbor if:

(1) The plan satisfies the ADP Safe Harbor (either match or non-elective); and

(2) The matching formula satsifes the following 4 requirements:

(a) No match on deferrals exceeding 6% of comp.

(B) match rate does not increase as deferrals increase.

© HCE match rate does not exceed NHCE rate at any level of elective deferrals

(d) discretionary match does not exceed 4% of comp.

Under the original post, the plan provided for a 3% non-elective and a 100% match on the first 6% of comp. The 3% safe harbor meets option (1) above and the match meets all the requirements of option (2) above, therefore is will pass the ACP Safe Harbor.

Note that this will only work if the matching formula is a fixed formula defined in the Plan Document. If it is a discretionary formula, then it cannot exceed 4% of comp.

Also, the formula must be specified in the Safe Harbor Notice which is given to the employees 30 - 90 days before the Plan Year

[Brian Gallagher]

and, richard, just to clarify: the match (in the case of the 3% n-e) can be subject to vesting, right?

[Guest Richard Scheer]

That's right --- all matching contributions, except for the ADP Safe Harbor (if matching option is chosen) can be subject to a vesting schedule.

[Tom Poje]

I agree with the conclusion. (it makes a big difference if match is discretionary [as I had interpreted the original post] or fixed.