Graduated Matching Formula

[TPA Bob]

Have a Plan we inherited that has a 50% match on the first 3% of deferral, 75% match on the next 3% of deferral (4-6), and a 100% match on the next 3% (7-9). I know the plan not only has to pass acp testing but also 401(a)(4) for a right or feature.

Appears to me that each level of match has to pass 401(b) with respect to availability. All participants can defer at least 9% of their pay per the plan document (no cap). Of course it appears the HCEs are the majority deferring the full 9%.

Is the 410(b) based on availability (which all participants have available) or is it based on the actual rate of deferral - in other words look at hces deferring at least 7-9% compared to nhces deferring at 7-9%.

First time I have had this and prior administrator did not address.

Thanks in advance

[david rigby]

Is the ADP test passed?

[TPA Bob]

Yes, passes both the ADP and ACP tests, and without considering the graduated match, the match passes 410(b).

Thanks.

[austin3515]

This does not need to pass BRF's. Everyone is subject to the same match schedule. The fact someone chooses not to contribute at a certain level is the turf of the ACP test.

If you had different levels of match for people with different lengths of service (as an example), that would need to pass BRF, because different groups of people are entitled different matches based on the same level of 401k contributions.

[Tom Poje]

I believe it is a BRF issue.

while true, ACP test may pass

and while true 'currently' all employees could get the max match, it becomes an 'effective' availability issue as well - this is where the BRF comes into play.

In fact, I see in the ERISA Outline Book 11.364 (2006 edition) at 3.b.1

this eventually refernecs the BRF rules, and with effective availability there is no 'real' mathematical test - it is simply a facts and circumstances test - so how do you prove it one way or another?

I suppose you end up using whatever mathematical tests are available - such as what % of NHCEs take advantage of the highest rate , how 'easily' the ACP test is passed, etc. the usual facts and circumstances see 1.410(b)-c(3)

[Belgarath]

I agree with Tom. I am dubious that the IRS would give this a "pass" if they looked at it, and it was basically the HC who were the only ones receiving the higher match. I believe this qualifies as an "other right" under 1.401(a)(4)-4(e)(3)(iii)(G), and as Tom mentions, the test under 1.401(a)(4)-4© is facts and circumstances.

[austin3515]

Far be it from me to argue with Tom! I learned something new today

[TPA Bob]

Thanks for all the replies. I will review the utilization and report back to all later.