Safe-harbor enhanced match

[SMB]

Setting up a new safe-harbor 401(k) Plan effective for 2007 (2 docs and 1 eligible NHCE).

Can the Plan provide for an enhanced safe-harbor match for ADP purposes on deferrals in excess of 6% of comp - i.e., 100% on employee salary deferrals up to 7% of comp ('cause $15,500 / $225,000 = 6.89%)?

No additional matching contributions to be made.

Thanks!

[austin3515]

Yes. But that's only an ADP safe harbor, so you need to run ACP test.

If my calculator is working, that means the NHCE must contribute at least 5% (5% plus 2% = 7%), assuming all of the HCE's do the full 7%, in order to pass ACP.

[SMB]

Austin3515,

Isn't a safe-harbor enhanced match sufficient to avoid both ADP and ACP testing?

Or, is ACP testing required in my example because the safe-harbor enhanced match is being made on salary deferrals in excess of 6% of comp?

If that's the case, could the plan provide for a safe-harbor enhanced match of, say, 150% on salary deferrals up to 6% of comp and not have to do ACP testing?

Thanks!

SMB

[John Feldt ERPA CPC QPA]

To get the free ACP test, look at 1.401(m)-3(d)(3)(i): "Matching contributions are not made with respect to elective deferrals or employee contributions that exceed 6% of the employee's safe harbor compensation."

So instead of the formula you propose, if you are not concerned about the 100% vesting, you could provide 116.67% match on the first 6% deferred. Anyone deferring 6% will get a match of 7% of pay. That would get you a free ACP pass.

There are a number of other ways to do that as well, you could combine the Basic SH match with a concurrent discretionary match or use a fixed match to get the desired results.