Can we talk about the "triple stacked match" plan again?

[SteveH]

We are looking at a client that is just not a great candidate for a retirement plan from a tax savings persepctive. I've never paid much attention to the triple stack match, but this client may be a candidate.

2 owners in the mid 30s, making approximately $150,000 each.

50+ employees the majority of which are in their 20s making $9-$12 an hour.

Currently they have a Simple plan with the 2 owners and 6 employees participating.

The best cross tested design I could get was like 38% of the contribution to the owners. If I add any deferrals to the owners I bomb the average benefits test. So any type of cross testing is out. It's just not beneficial enough.

With cross testing only providing 38% to the owners, an integrated formula isn't better.

Since only a few employees are participating in the Simple plan, I figured trying to max out the match portion of the plan in such a way where we don't have to do any discrimination testing is going to work best. Since the employees typically make $10 an hour I am assuming that participation won't increase dramatically even when implementing a monstrous match.

Any thoughts, any concerns about the triple stacked match plan, any other ideas?

[John Feldt ERPA CPC QPA]

Whenever we propose the triple-stack match, we show them what we believe is a reasonable scenario, then we also show them the worst case scenario (from an employer contribution standpoint).

You should make sure the SH match is within the SH parameters, the fixed match is based on deferrals that do not exceed 6%, and that the discretionary match is with the 6%/4% limitations.

It also helps to explain to the employer that even in a business downturn, their own deferrals will be the biggest part of the plan cost, and thus controllable (by the owners deferring less or by not deferring).

Have you tried using a smoothly increasing rates design (one that avoids the 5% gateway)? If not, review Bill Karbon's article in the ASPPA journal from last year (summer?). The owner in Bill's example should show 19 years of service, not 9; the minimum starting rate is 1% to allow the top heavy minimum to act as a minimum instead of an additional contribution, and a couple of the rates in one chart need correcting. But overall, the article does a good job explaining the design. The biggest downfall for this design is that these are fixed contributions, not discretionary.

[Belgarath]

While this generally helps mostly in family situations, it is sometimes used for non-family...

they might consider excluding one of the owners (and they make it up outside the plan) which reduces the number of NHC to around 18 in your example of 50, assuming no other HC. This also sometimes allows them to more closely target the NHC's that they DO wish to benefit, depending upon job classifications, etc..

So likely not a good solution, but possibly worth looking at.

[SteveH]

J4FKBC,

So in the example I have given above if we assume that the owners make $150,000, if we use

Deferral = $15,500

Safe Harbor match of 100% of the first 3% deferred, 50% of the next 2% = $6,000

Fixed Match of 194.4% of the first 6% deferred = $17,500

Discretionary Match of 2/3 of deferrals up to 6% of comp (not to exceed 4% of pay) = $6,000

I am able to effectively get the owners up to $45,000 in contribution each, correct?

Is there any limitation on the formula for the fixed match portion or are we only limiting ourselves by the deferrals up to 6% of pay so that we don't have an increasing match formula? I was looking at an example by Sungard and they had the fixed match at 85.19% in order to max out the owner. That seemed arbitrary so is there a reason that I couldn't go up to 194.4%?

- Edit - By the way we don't want to have to test this plan, so if I need to scale something back please let mw know

[John Feldt ERPA CPC QPA]

"I am able to effectively get the owners up to $45,000 in contribution each, correct?"

I didn't check the math, but the approach appears to be correct, yes.

"is there a reason that I couldn't go up to 194.4%?"

I find no reason that the fixed match could not go up as you show in your formula, as long as it ignores deferrals above 6%. The 85.19% was probably designed to max out owners whose pay was at the maximum 401(a)(17) comp limit.

edited for typo

[John Feldt ERPA CPC QPA]

If one of the 3 matches is safe harbor and the others are as described, you would be safe harbor, so no ADP/ACP. If you're not covering everyone, you have to test for coverage; such as doing a carve-out, as Belgarath mentioned.