SH Match - Calling Tom Poje

[Blinky the 3-eyed Fish]

Plan provides SH match 100% first 3%, 50% next 2%. They want to provide an additional match that avoids the ACP test. I understand this additional match must be limited to 4% of pay per person and be based on comp no greater than 6% of pay. My question is this: does the plan explicitly need to have a formula that caps compensation or otherwise spells out a match formula? The current language is very flexible discretionary language with no references to a formula or cap.

[Below Ground]

You should be okay. In fact, many "boiler plate amendments" for compliance with Final 401(k) / (m) Regs actually include language that says "If Safe Harbor... discretionary match must...". If your Plan used such amendment, you are without a doubt okay.

I know I am not Mr. Poje, but I hope this helped.

[Tom Poje]

there are a couple of things going on worth mentioning in regards to the 'match'

1. you have a Basic safe harbor match, which satisfies ADP test and can be used to satisfy the ACP safe harbor as well.

2. if a discretionary match is provided, then, to be considered safe harbor, as you indicated, it must be limited to 4% of comp (and 6% of deferral) - this means that a 66% of deferrals up to 6% would work because no more than 6% of deferrals was matched and the maximum amount of doscretionary match equals 4% of comp.

but you have to follow the terms of the document - if there is no cap on the discretionary then you may have to do some testing - on either all match or match less the 4% basic (though I think even that may have been slightly modified if it is an automatic enrollment safe harbor match - something in the back of my overly thick skull says there is something about that I dont quite recall)

now, at least in regards to Corbel documents, there is cap written into the discretionary if the intent is to be safe harbor.

3. the plan could also (or instead of the discretionary) provide an additional fixed match on up to 6% deferred (there is no cap of up to 4% of comp)

lets see, three points, three eyes for Blinky, so that should just about cover it.

[ERISA1]

The following question runs off on a different tangent, but I wonder if you can point me in the right direction:

Assume there is a sponsor who had a safe harbor match in effect for all of 2007. It now turns out that the sponsor is in serious financial straights; in fact, they're headed for bankruptcy. The sole shareholder doesn't want to squelch on the safe harbor contribution.

Can the sole shareholder fund the safe harbor match by having funds transferred from his accounts to those of participants entitled to the match? (Assume that the plan has been terminated, and therefore, distribution can now be paid from the plan.)

I know this kind of transfer could happen in a DB plan. Can it be done in a DC plan?

Thanks very much.

[Below Ground]

Assuming it is allowed by plan terms, and related issues are satified (money type, age, hardship allowed, ect...) they principal may be able to get a hardship, in-service or loan from which to get monies needed. I suggest that the loan may be the best approach since it is not a taxable event (assuming no default). I do not believe the "transfer" of your post would be allowed.

[Bird]

The issue is that the company needs money. The owner of the company is looking for cash on behalf of the company, and happens to have an account in the plan. If he can, and wants to, get at that money through a permitted distribution or loan, fine, but then he needs to lend the money to the company or otherwise get it into the company coffers. There is no direct transfer from account to account.

[Earl]

We had a DOL audit where they told us the KEY EE money (defs & match) had to be forfeited and used to fund the employees.

Then the IRS audited the plan and said that we couldn't do that and that we had to undo it.

[austin3515]

Earl -

That's one of the best stories I've ever heard!

Thanks for that gem...