ACP Safe Harbor

[Guest dmdoug]

I have a plan that adopted the basic match formula to be safe harbor. At the end of the year, the sponsor decided to add a discretionary match such that the total match for the year was 100% of the first 5% deferred. Does this match satisfy the ACP safe harbor?

Some could say "no" on the basis that the discretionary match on its own (50% of deferrals between 3-5%) does not meet the non-increasing rate rule. If we can view the match in total, and since the discretionary match does not exceed 4% of pay, the answer is "yes".

Anyone else confronted this issue?

[Tom Poje]

you said plan has basic match, which would be:

up to 3% = 100% match

4% = 50% match

5% = 50% match

discretionary=

up to 3% = 0%

4% = 50% match

5% = 50% match

so combined you have

up to 3% = 100%

4% = 100%

5% = 100%

that would seem to satisfy what you call 'non-increasing' rule.

the rule is not that the match can not 'increase', but rather the match at 4% can not be greater than the match at 3%.

[Guest dmdoug]

Thanks for the reply. You think that the requirement of a non-increasing rate of match is applied on a combined basis. That is, when looking at both the basic SH match and the discretionary match together.

Some practitioners have viewed the requirement as needing to apply to the discretionary match alone. Clearly, a match of 0 on the first 3%, and 50% on 3-5% is an incraseing rate of match as elective deferrals increase.

Your view is the one I'm looking to confirm as it is better for my client.

[Tom Poje]

ERISA Outline Book 11.345 (2001 edition)

has the following:

Plan that provides additional match:

if plan provides match described ib 3 [which is the Basic Match]...but also makes additional matching contributions, the employer will have to determine whether all the matching contributions COMBINED[emphasis mine] (including those described in 3...) satisfy the formula requirements for the ACP safe harbor

[Guest tracys]

Is there a definitive answer to the question of whether the additional match and the safe harbor match must be combined to determine if the safe harbor limits have been met. Or can each match be subject to it's own 6% limit, etc. I've read conflicting opinions on this.

Also, if the plan can make an additional match (with vesting & last day) and has satisfied the requirements for the ACP safe harbor, is the plan still exempt from top heavy minimum contributions. Is the additional match (not 100?% vested and given to all) still considered to fall into that "soley" safe harbor contribution category?