Enhanced Matching Contribution Formula

[Guest rslagle224]

We currently have a plan that utilizes the ADP Safe Harbor Matching Contribution (100% of 3% + 50% of Next 2%). The sponsor is considering implementing an additional enhanced matching contribution. They want to have the option of making this contributiion dependent on the year the company has. And they want it to automatically pass the ACP test.

We had the idea that we would state in the notice that the employer will make the ADP Safe Harbor Match and that they MAY make an additional Enhanced Matching Contribution that will increase the second portion of the ADP Matching Contribution from the required 50% up to a maximum of 100% on the "Next 2%". This percentage will be determined based on the amount of the additional matching contribution the employer can afford to make.

Is this an option for the plan and would this additional "Enhanced" matching contribution fall under the ACP Safe Harbor Enhanced Matching options and thus automatically pass the ACP Test for the year.

Wow is that tough to explain in words.

Thanks

[Tom Poje]

I believe you could do that, not as an enhanced match, but rather as a discretionary match to all participants eligible to defer(no hours or last day provision).

My understanding you would combine the matches to see if the rate of match is still satisfied. based on what you said, it would be as the levels of match above 3% would never be greater than the levels of match below 3%.

[jquazza]

I agree with Tom, adding a discretionary match will provide the sponsor the flexibility to increase the match. If you want to provide an enhanced SH match that will be different every year, you will have to amend the plan each year and that not the best solution. And since the SH notice has to explain the match formula to the participant and has to be provided before the year begins, the sponsor won't know how good the year was anyway.

Also, to preserve the automatic pass on the ACP, make sure the sponsor does not match deferrals above 6% of comp.

[Guest rslagle224]

Thanks for the information guys. In a nutshell:

The employer must specify before the beginning of the plan year, as with any other safe harbor contribution, that they will be making an enhanced Safe Harbor matching contribution equal to some percentage. Provided that Enhanced match does not match deferrals > 6% of comp.

And if we wanted, instead of an Enhanced Match, we could just make it a discretionary match on top of the safe harbor match with no hours or last day of employment requirements. I am assuming that we would have to run the ACP test on this discretionary match.

[Guest jhinkle]

If it is done as a discretionary match so employees basically get a match of 100% up to first 5% would there be an issue with the match exceeding 4% of compensation, at least for ACP safe harbor purposes?

[Tom Poje]

no, as long as the discretionary match is capped at 4% of compensation you are fine. The combined overall match can be greater than 4% of comp.

(Otherwise once you provided a Basic Match you could not provide anyother match. It would also be next to impossible to have an enhanced match much different from a Basic Match)