Enhanced Safe Harbor Match

[Guest HeatherS]

If a plan document states that participants can defer 100% of compensation up to the limit ($13,000 for 2004), what is the most match that can be made using an enhanced safe harbor match? Can you tell me the Reg that states this?

[MWeddell]

There is no maximum for an enhanced safe harbor match. There are some restrictions including (i) discretionary contributions can't exceed 4% of pay, (ii) no match on deferrals above 6% of pay, (iii) no HCE gets a better match rate than any NHCE. Of course 415 limits apply too.

For example, if a plan document were to specify that the match is 1000% of the first 6% of pay deferred into a plan, that plan could still meet the enhanced matching 401(k) safe harbor formula. In practice, I've never seen any match nearly so generous.

The 401(k) safe harbor rules are mostly in Notices 98-52 and 2000-3. The July 2003 proposed 401(k) & 401(m) regulations consolidate the 401(k) safe harbor rules, but they aren't effective yet and occasionally change the rules.

[Tom Poje]

Maybe to clarify:for purposes of the ADP safe harbor there are no restrictions - at all.

However, any enhanced match above those limits listed by Weddell would have to be tested in the ACP test.

[Guest jhinkle]

So, if I can resurrect this post to request a couple of clarifications. I would appreciate thoughts on the following questions:

1. Assuming an employer only matches up to 100% (i.e., no hypothetical 1000% matches), is a 100% match on the 6% of compensation the greatest enhanced safe harbor match a plan can make and avoid both the ADP and ACP tests?

2. Is there anything wrong with the following as an enhanced safe harbor matching contribution that avoids both ADP and ACP testing:

100% match on the first 3% and 50% match on the next 3% of compensation (i.e., 50% match on deferrals at 4, 5, and 6%)?

To my thinking, this enhanced match just extends the basic safe harbor match to one more percent of compensation deferred so that deferrals at 6% get matched as well. Although in terms of total dollar amounts participants could receive a match equal to 4.5% of compensation, this should not be a problem here if the entire match is a safe harbor match rather than a discretionary match. Similarly, there should be no ACP issue since no matches are made on amounts above 6%.

[Tom Poje]

your reasoning sounds correct.