safe harbor - vesting on 5th and 6th%?

[EGB]

Thoughts on whether the following works as a matching safe harbor and/or whether it would require any additional tests: mandatory match of 100% of the first 6%; first 4% is vested; 5th and 6th% is subject to a 6-year graded vesting schedule. Any comments are greatly appreciated.

[John Feldt ERPA CPC QPA]

To be brief (for me):

You essentially have two matching formulas.

One is an Enhanced Safe Harbor Match, dollar for dollar on the first 4 percent. This is 100% vested and has no allocation conditions.

The second is a matching formula that matches zero percent on the first 4 percent, then 100% on the next 2 percent. This you intend to apply vesting to, and you could apply allocation conditions as well. However, it will be subject to ACP testing. Do you think it will pass?

I'm sure additional commentators will have plenty to say about this. As a more seasoned DB person myself, I'm curious to hear what the more seasoned DC folks will say.

[JanetM]

It will have to pass coverage. If the NHCE population ADP average is below 4% you will most likely fail.

[Tom Poje]

when Janet says 'coverage', I think she is referring to BRF, which could fail the effective test, since, in effect, few NHCEs may be able to defer amounts above 4%

[EGB]

Thanks so much for everyone's comments.

So, both ACP and BRF tests would have to be satisfied. Correct?

Satisfaction of the ACP test automatically satisfies BRF as to a non-discriminatory amount per Reg. 1.401(a)(4)-1(b)(2)(ii)(B), but we would still need to satisfy 401(a)(4) as to availability?

In any event, I doubt that we can pass ACP.

[PMC]

Can a Safe Harbor plan utilizing a matching method to satisfy S-H include an additional Match subject to allocation restrictions as J4FKBC mentioned? I thought the final (k)/(m) regs. prohibited that?

[EGB]

PMC - vesting is not considered an allocation condition; 1000 hours and last day requirements are examples of allocation conditions.

[PMC]

Correct. I was responding to J4FKBC's comment

"This you intend to apply vesting to, and you could apply allocation conditions as well."

I didn't think allocation restrictions could be included in a S-H plan using a Matching method to satisfy S-H.

[John Feldt ERPA CPC QPA]

PMC, you are referring to the rules that now apply under the final 401(k) / 401(m) regulations.

Please correct me if this is in error, but I think the answer will depend on the language in the final 401(k) / 401(m) regulations amendment itself as adopted by the plan.

The plan can choose to maintain the allocation conditions for the non-Safe Harbor match, but by doing so, ACP testing will be required (but no ADP test needed, right?)

Not that anyone would want to do that with a Safe Harbor match plan, but I think that it is possible?

[Pension Nerd]

I thought regardless of accrual requirements, the additional match in this example would require an ACP test since it would be an increasing match as deferrals increase?

[John Feldt ERPA CPC QPA]

Pension Nerd,

Yes, I believe that is correct.