Safe harbor match

[Guest cynthiar]

The basic safe harbor match is 100% of the first three percent and 50% of the next two. It is my understanding you can have an enhanced safe harbor match of 100% of the first 4%.

I am reviewing a plan document that is giving a safe harbor match of dollar for dollar up to 5% of covered compensation.

It is my understanding that you cannot have a safe harbor match oformula that goes above 4% of compensation and 6% of deferrals. Is that correct?

[Brian Gallagher]

Enhanced match can go up to 100% of deferrals not exceeding 6% of compensation.

The 4% level has to do with a discretionary match.

[Guest cynthiar]

Please explain what you mean when you said the 4% level has to do with the discretionary match.

Thanks

[Tom Poje]

actually the enhanced match can be whatever, but you have to be careful on your ACP testing. you have a choice to run ACP based on all match or just on match that exceeds 4% (since you could have had a basic match at 4% you are allowed to treat that portion as a safe harbor.

so in your case, it sounds like you run an ACP test on either 5% or 1%

[Guest cynthiar]

Thanks.

Have I got it right this time. You need to test if your safe harbor match goes above 4% of compensation.

Here is an example:

The match is 66 2/3 % up to 6% of deferrals:

If your compensation was 200,000 and you deferred 12,000 the match would be 8,000 and you would not need to test because the match is not more than 4% of compensation.

The match is 100% up to 6% of deferrals:

If your compensation was 200,000 and you deferred 12,000 the match would be 12,000 and you would need to test. The testing would be on 2% or 6%.

[Tom Poje]

Actually, I have it wrong. My apologies. Brian is correct.

If it is solely enhance match AND as long as it doesn't go above 6% of compensation you satisfy ACP safe harbor. eg you could do 300% up to 6% and be okay.

[Guest cynthiar]

Thanks for the clarification.

[Brian Gallagher]

The plan may make an additional, discretionary match. above and beyond the enhanced match and stipp pass the ADP. However, if the discretionary match is greater than 4% of comp, ACP will not be satisfied by virtue of safe harbor.

I may not got all the technical pieces right. I would see Q 27:92 in the Pension Answer Book (2003 ed).

[Guest debic123]

A slight twist to the cases above if you could give me your insight on this, it would be appreciated.

Plan is 401k, makes a basic SH match formula ($ for $ first 3%, then 50% of next 2%, for total match of 4% of comp), I'll call this the "1st" match, meets all requirements to satisfy ADP AND ACP safe harbor.

Then the ER comes in at the EOY and wants to do discretionary match that is $ for $ up to 4% of compensation. Plan allows for this discretionary match, and has a restriction that states Matching Contributions (whether or not Qualified) will not be made on Employee contributions withdrawn prior to the end of the Plan Year.

So the "2nd" match imposes allocation conditions. If you terminated and take your balance out of the plan prior to the EOY, you will not get the 2nd Match. If I'm reading it right, the ERISA Outline book (2004 edition, Pg 11.446) says I have to combine the two match formula's together to see if I really have an ACP Safe Harbor. Since the 1st match meets the ACP Safe Harbor, (no allocation conditions) but the 2nd match does have conditions, do I still have an ACP Safe Harbor?

Do I have to run the ACP test and if so, what match is included in the test? 1st and 2nd match or just the 2nd discretionary match only?

Thanks!

[Tom Poje]

under the proposed regs, if you impose any conditions on the match you no longer have a safe harbor formula. obviously, those are not in effect at this time, so that doesn't really answer your question, but be aware it probably will in the future.

[Guest R. Daestrom]

Tom - I think you already said this, but just to confirm, if the match is 100% up to 6% of pay (or 300% up to 6% of pay), and it is all 100% vested, then the ADP and ACP test are automatically satisfied? Also, this match will also satisfy top heavy as well, correct?

Thanks

[Tom Poje]

assuming the match meets all other requirements, e.g. no eligibility restrictions, 100% vested, not discretionary, subject to the distribution restrictions, then yes, you would satisfy ACP safe harbor.

If there were no other contributions, the plan is not considered to be top heavy.

if there are forfeitures or profit sharing contributions, then yes, if plan is top heavy the match could be applied toward top heavy