Matching employee after-tax contributions in a Safe Harbor plan

[Guest koolkidd]

In my 401k plan (which is not Safe Harbor), my company currently matches 50% of pre-tax and after-tax contributions up to 6% of base pay. For example, if I make $100k and contribute $6k pre-tax, I get a match of $3k. Likewise, if I make $100k and contribute $5k pre-tax and $1k after-tax, I get a total match of $3k.

If the plan converts to a Safe Harbor arrangement and the match changes to 100% up to 4% or 100% on 3% plus 50% on 4-5%, can we still match after-tax contributions?

Can the Safe Harbor formula be applied in the same way as our current formula and satisfy the ADP and ACP tests?

If the answers to these questions are YES, do we need to test the match on after-tax or just the after-tax itself?

[Tom Poje]

the answer to this is found in Notice 2000-3, question 5

A plan does not fail merely because plan matches both deferrals and after tax contributions if:

1. matching contributions of deferrals are not effected by the amount of after tax contributions (I guess that would mean you have a formula (basic match) for deferrals and another formula for after tax contributions

OR

2. matching contributions are made with respect to the sum of deferrals and after tax. (In other words, if you deferred 6% and after tax was 3%, under the basic match you still end up at 4% match)

All after tax contributions must be tested. In addition, You are allowed to include all matching contributions or just those matching contributions that are greater than 4%, so it really depends on what type of formula you have.

[Guest koolkidd]

Thanks Tom. I think my plan would fall under the number 2 option you noted and this would spare the plan from making significant changes to its present after-tax/pre-tax aggregation when paying match. Only the formula would be accelerated and made more generous so it would comply with one of the safe harbor formulas. I'll take a look at 2000-3.