Higher Match level for Non Highly than Highly

[Guest padmin]

Is it possible to designate a higher match level for the NHCE group than the HCE group such as:

NHCE: $ for $ on first 3% then 50% of next 3%

HCE: $ for $ on first 2% then 50% on next 3%...4%

[ERISAnut]

Sure,

You can always design a plan to provide more favorable benefits toward NHCE's. The key is being able to map this type of flexibility to the document (i.e. prototype).

[MWeddell]

Consider having the plan provision also allocate the higher match rate to HCEs who in good faith are erroneously believed by the plan administrator or its delegatee to be NHCEs. This means that occasionally the client will need to run a 401(a)(4) test demonstrating that the available match rate doesn't favor HCEs instead of automatically passing that test. However, it also eliminates the possibility of having to retroactively change the match for a stray individual in accordance with the IRS' Self-Correction Program. This type of provision might especially be helpful if the match is allocated each payroll period but one doesn't have prior year compensation figures used for determining HCEs finalized until late January following a plan year.

[ERISAnut]

Consider having the plan provision also allocate the higher match rate to HCEs who in good faith are erroneously believed by the plan administrator or its delegatee to be NHCEs. This means that occasionally the client will need to run a 401(a)(4) test demonstrating that the available match rate doesn't favor HCEs instead of automatically passing that test. However, it also eliminates the possibility of having to retroactively change the match for a stray individual in accordance with the IRS' Self-Correction Program. This type of provision might especially be helpful if the match is allocated each payroll period but one doesn't have prior year compensation figures used for determining HCEs finalized until late January following a plan year.

I don't know about this one. It appears to be a plan provision which violates the definitely determinable allocation formula rules. It would be very convenient to arbitrarily misclassify an HCE as an NHCE to provide a matching contribution one HCE but I don't think that would be appropriate. You could write the provision that anyone who becomes HCE during the year by virtue of the 5% owner would be considered as NHCE for up to the date he first becomes a 5% owner. The compensation calculation is just too easy to say missing it would be good faith on anything. Just my take.

[MWeddell]

That's a worthy objection, ERISANut. I have received favorable determination letters with this type of provision, not that that proves much at all. Looking back, the standard I used was "reasonably determined to be NHCE at the time the match was made" which is tighter than the "good faith" standard.

The problem to anticipate is that one usually won't know exactly what the HCEs are until late in January, and often the match is made before then. I'm more uncomfortable with taking match away from some employees, especially because this isn't a flaw in the procedures subject to the Self-Correction Program but rather a completely foreseeable problem.