Non-discrimination Test

[Guest chec]

We have a 401(k)/ESOP where co. match is in stock. We match dollar for dollar up to 4%. We always fail ADP/ACP test. I read somewhere that beginning in 1999 if a co matches dollar for dollar up to 3% and 50 cents on next two percent that we will no longer be subject to ADP/ACP testing. Is this true and when is it effective. Quick response please as Board of Directors sets annual match percent at the 10/29 meeting.

[Dawn Hafner]

The Safe Harbor plan becomes available 1/1/99. If the employer matches 100% of the first 3% + 50% of the next two percent, then no ADP or ACP tests are required. They are deemed to pass. Note that these contributions must be 100% vested, and are subject to the same withdrawal restrictions as 401(k) deferrals. There are also notice requirements that each employee who is eligible to participate in the 401(k) must be notified of this match within a reasonable period before any year.

[This message has been edited by Dawn Hafner (edited 10-13-98).]

[MWeddell]

A dollar for dollar match on the first 4% of pay deferred also satisfies the safe harbor contribution. However, there's no IRS guidance on the safe harbor contributions yet. It wouldn't shock me if they said that the safe harbor couldn't be made to an ESOP by analogy to the mandatory disaggregation rules in the 410(B) regulations (which apply to 401(k) via a bunch of cross-references) because ESOP contributions must be tested separately from non-ESOP contributions. So proceed with caution.