Safe Harbor Match maximum formula

[Brian Gallagher]

I know that the maximum Safe Harbor match is 6% (enhanced match). And I know the plan can have an additional, discretionary, match as well. Is the maximum on that 4% before the ACP test has to be performed?

Two more questions:

Is it at 4% or more than 4% when the test has to be applied?

If and when the ACP test is done, which match gets tested? (say for example a 5% discr. match) Is it all 11%, or just the add'l 5%

I ask this becasue a client of mine currently has a match of 10% but the participation is very poor, and the ADP/ACP fails each year. I was thinking of suggesting a SH match of 6% and a discretionary of 4% to ease the plan's testing woes.

Will we have to do the ACP test? Does anyone see a problem with that scenario?

Any thoughts, as always, are appreciated.

[Tom Poje]

be careful!

Enhanced match can be anything equal to or greater than the basic match and

satisfy ADP safe harbor.

The 6% cap is for ACP safe harbor purposes. The govt assumes that most NHCEs can not defer more than 6%, hence the reason for the cap. But, for example a match of 100% of the first 8% deferred is technically ok. It is not that you can't have that, it is just if you do, you have satisfied ADP safeharbor, but you fail ACP safe harbor.

When testing ACP safeharbor, combine all matches and run through the checklist:

1. No match > 6% of deferrals. thus 200% of the first 6% deferred is ok.

2. Combined formula does not increase as deferral increases.

thus 100% of the first 5% plus a discretionary match on deferrals between 3 and 6% would fail. even though the maximum discretionary match would be 3% (beneath the 4% for discretionary) this formula would increase as deferral increases.

3. formula is at least as good as the basic match.

it is only the discretionary match which is limited to 4% of comp not the combined.

deferrals greater than 6% can not be matched.

reminder:Proposed regs require there can be no eligibility requirements on the discretionary match either

[jquazza]

Tom,

actually you can match deferrals in excess of 6%, but you'll have to run the ACP test.

[TPApril]

for clarification on running the ACP Test on match in excess of 6% - consider this formula, 401(k) is matched 100% up to 8% comp.  ADP Safe harbor is met. Since ACP Safe harbor is not met, testing on that additional 2%.  does this mean the numerator only includes matches from 6% - 8% (ie up to 2% per participant). In practice I'd imagine this doesn't tend to pass, considering that it would seem that HCE's  would predominantly benefit from the additional match?  Perhaps a 133% match on first 6%?