ACP Safe Harbor

[Guest Thornton]

A plan that were are taking over administrative responsibility for is a 401(k) safe harbor plan. It provides for the 3% nonelective ADP contribution and a required match of 100% on the first 5% of compensation deferred. The match has no accrual requirements but is subject to a vesting schedule.

The current TPA has not been performing the ACP test, noting in the year-end reports that it is automatically passed due to the safe harbor status of the plan. I know that a discretionary match, to avoid the ACP test, must be limited to 4% of compensation.

1) Since this is a required match and under 6% compensation with no accrual requirements, is the ACP test thus automatically satisfied?

2) Is the vesting schedule on safe harbor match permissible?

Thanks.

[John Feldt ERPA CPC QPA]

Their plan document should have the language for this, in conjunction with its amendment for the final 401(k) regulations.

1) I think under the final 401(k) regulations, the ACP test is required if the plan imposes allocation conditions on any matching contributions, regardless of whether it is a fixed match or a discretionary match. But check the document/amendment. The pre-2006 rules had the 6% deferral matching maximum and the 4% maximum match amount, but the 4% limit only was applicable to discretionary match.

2) Safe Harbor contributions are 100% vested. You mentioned that they are doing the 3% nonelective contribution. If they are doing that, why are they also providing another Safe Harbor contribution (a match)? They would not need to do both to be considered safe harbor. If the match you mention is really just a fixed matching formula, and not a true Safe Harbor 401(k) match, then it would not have to be 100% vested.

[stephen]

Thornton,

Based on the information you provided I believe the answers to your questions are:

1) Yes. Since fixed match based on no more than 6% of compensation and no accrual requirements.

2) Yes. Since match is not safe harbor contribution it is not required to be 100% vested.