Tiered Matching Contributions

[Guest Laura Millwood]

The prototype document we use allows for tiered matching contributions based on years of service. Will/can this not result in discriminatory amounts for the HCEs if they receive the higher rate of match? Doesn't this cause you to have to pass under benefits rights and features as well as ACP?

[LCARUSI]

Assuming your longer service employees tend to be more highly compensated employees, it will be harder for the Plan to pass the ACP test with the tiered match you describe.

And even if you do pass the ACP test, yes you must also subject each level of matching contributions to a benefits, rights & features test. Basically, you have to show the participant group eligible to receive each level of match satisfies 410(B).

[Tom Poje]

example

#of %of #of %of

svc # of ees HCE HCE NHCE NHCE

<5 420 1 14.28% 419 57.24%

>5 <10 231 2 28.57% 229 31.28%

10+ yrs 88 4 57.14% 84 11.46%

Total 739 7 732

Concentration test 732/739 = 99%

safe harbor for 99% is 20.75%

now check each of the three groups to make sure NHCE % / HCE % > 20.75%

(Note: in this example, one of the groups will fail)

[Tom Poje]

ok, I will try again, different format. I don't understand computers 'at all',

but better to have loved and lost than never loved 'at all'....or is that 'a tall'

Anyway, 3 groups of employees:

Plan has 739 employees

732 NHCEs and 7 HCEs

Concentration % test 732/739= 99%

so safe harbor % is 20.75%

1.< 5 yrs of service

420 employees

1 HCE

419 NHCEs

% of HCEs 14.28%

% of NHCEs 57.24%

2.>5yrs svc but < 10 yrs of service

231 employees

2 HCEs

229 NHCEs

% of HCEs 28.57%

% of NHCEs 31.28%

3.>10 years service

88 employees

4 HCEs

84 NHCEs

% of HCEs 57.14%

% of NHCEs 11.46%

Determine ratio % for each group (NHCE%/HCE%)

By the way group 3 will fail. You should get 20.01%