New Comp Plans - 5% Gateway

[Guest AJM 34]

I have a Safe Harbor 401(k) /New Comparability Plan with Matching Contributions.

The Safe Harbor Matching formula is 100% on the first 3% deferred and 50% on the next 2% deferred. Therefore, the match is 100% on the first 4% deferred.

Can the 4% Safe Harbor Match be included to satisty the New Comp gateway requirement of 5%? Therefore, I only have to give the HNCE a 1% New Comp Contributuion to satisfy the (4 + 1) 5% Gateway test?

[Mike Preston]

No.

[Guest LauraVanSteeter]

How do you get 100% on the first 4%??

If I defer 4% I get a 100% match on the first 3% and 50% on the next percent. That's a match of 3.5% on the first 4%.

The 'effective' match for participants deferring at least 5% would be 4%, but nothing below that.

[stephen]

Perhaps you can amend the plan for 2008 to be 3% nonelective?

[Guest AJM 34]

I was assuming that the participant made a 5% Employee Elective Deferral. Thereore, the Safe Harbor Match is 100% on the first 4% that is deferred.

How do you get 100% on the first 4%??

If I defer 4% I get a 100% match on the first 3% and 50% on the next percent. That's a match of 3.5% on the first 4%.

The 'effective' match for participants deferring at least 5% would be 4%, but nothing below that.

[Guest AJM 34]

Mike:

As a follow up question, can the 3% Safe Harbor Non-Elective contribution be applied to satisfy the 5% Gateway?

No.

[austin3515]

Absolutely. The 3% safe harbor is practically a foregone conclusion for a new comparability plan, because it counts towards the gateway, nondiscrimination testing, satisfies top heavy, and allows the HCE's to max 401(k).

[Bill Presson]

I was assuming that the participant made a 5% Employee Elective Deferral. Therefore, the Safe Harbor Match is 100% on the first 4% that is deferred.

Even if a participant defers 5%, with the SH basic match formula, this is not a true statement. They will get 4%, but it's not 100% on the first 4% that is deferred.

[Bill Presson]

Mike:

As a follow up question, can the 3% Safe Harbor Non-Elective contribution be applied to satisfy the 5% Gateway?

No.

Just be sure to complete the amendment and notice by November 30!

[Guest AJM 34]

Bill:

Check my match. I disagree with your statement below. If a participant defers 5% with the SH basic match formula, they will essentially get matched 100% on the first 4% that they defer.

100 % on the first 3%

50% on the next 2%

This equals 100 100% on the first 4% deferred. Do you agree?

I was assuming that the participant made a 5% Employee Elective Deferral. Therefore, the Safe Harbor Match is 100% on the first 4% that is deferred.

Even if a participant defers 5%, with the SH basic match formula, this is not a true statement. They will get 4%, but it's not 100% on the first 4% that is deferred.

[Sully]

Just be sure to complete the amendment and notice by November 30!

I agree the notice should be done by November 30, but couldn't they do the amendment as late as December 31st?

[John Feldt ERPA CPC QPA]

Sully,

Yes. The only time an amendment would be required earlier (by December 1st actually for a calendar year plan) would be in the case where the plan provided a "maybe" notice for the year, and now they decided that they actually will contribute the 3%. That amendment and the supplemental notice must get done no later than 30 days before the last day of the plan year. I've marked that in bold below.

1.401(k)-3(f) Plan amendments adopting safe harbor nonelective contributions

(1) General rule. --Notwithstanding paragraph (e)(1) of this section, a plan that provides for the use of the current year testing method may be amended after the first day of the plan year

and no later than 30 days before the last day of the plan year

to adopt the safe harbor method of this section, effective as of the first day of the plan year, using nonelective contributions under paragraph (b) of this section, but only if the plan provides the contingent and follow-up notices described in this section. A plan amendment made pursuant to this paragraph (f)(1) for a plan year may provide for the use of the safe harbor method described in this section solely for that plan year and a plan sponsor is not limited in the number of years for which it is permitted to adopt an amendment providing for the safe harbor method of this section using nonelective contributions under paragraph (b) of this section and this paragraph (f).

(2) Contingent notice provided. --A plan satisfies the requirement to provide the contingent notice under this paragraph (f)(2) if it provides a notice that would satisfy the requirements of paragraph (d) of this section, except that, in lieu of setting forth the safe harbor contributions used under the plan as set forth in paragraph (d)(2)(ii)(A) of this section, the notice specifies that the plan may be amended during the plan year to include the safe harbor nonelective contribution and that, if the plan is amended, a follow-up notice will be provided.

(3) Follow-up notice requirement. --A plan satisfies the requirement to provide a follow-up notice under this paragraph (f)(3) if, no later than 30 days before the last day of the plan year, each eligible employee is given a notice that states that the safe harbor nonelective contributions will be made for the plan year. The notice must be in writing or in such other form as may be prescribed by the Commissioner and is permitted to be combined with a contingent notice provided under paragraph (f)(2) of this section for the next plan year.

[Kimberly S]

Bill:

Check my match. I disagree with your statement below. If a participant defers 5% with the SH basic match formula, they will essentially get matched 100% on the first 4% that they defer.

100 % on the first 3%

50% on the next 2%

This equals 100 100% on the first 4% deferred. Do you agree?

They get a 4% match on 5% deferrals. The way I learned math, that would not be 100% of the first 4% deferred.

[Guest AJM 34]

Kim: I stand corrected.

I am trying to say if a participant defers 5%, they will get a 4% Employer Safe Harbor Match.

Bill:

Check my match. I disagree with your statement below. If a participant defers 5% with the SH basic match formula, they will essentially get matched 100% on the first 4% that they defer.

100 % on the first 3%

50% on the next 2%

This equals 100 100% on the first 4% deferred. Do you agree?

They get a 4% match on 5% deferrals. The way I learned math, that would not be 100% of the first 4% deferred.