Safe Harbor Match plus nonvesting match?

[Guest Laura Millwood]

Can you put the safe harbor match in place (100% to 3%; 50% on 3% to 5%), but also have a portion of match on top of the safe harbor that is subject to vesting? I am also having trouble understanding the enhanced matching formulas in Notice 98-52. Can anyone explain more clearly? Thanks!

[david shipp]

You can put a layer of forfeitable matching contributions over the ADP safe harbor matching contribution, the question is, "will the forfeitable matching contribution be subject to ACP testing?"

It would appear that if the total matching contribution (ADP safe harbor plus a layered match subject to vesting) meets the limitations of section VI.B.3 of Notice 98-52, the ACP safe harbor would be satisfied.

For example, if a plan provides the ADP safe harbor match, and also provides a forfeitable match equal to 50% of the first 6% salary deferals, I think the conditions of VI.B.3 are met.

(I also think the forfeitable match could be discretionary if the additional condition under VI.B.4.b, limiting a discretionary match to 4% of compensation, is met.)

While the examples in the ACP safe harbor section ( VI.D) deal with a layer of forfeitable matching contributions over an ADP QNEC safe harbor contribution, I don't see anything that would prevent layering a forfeitable match over an ADP matching safe harbor contribution and still achieve an ACP safe harbor.

This is obviously an matter of interpretation and I would look forward to validation (or repudiation) from others.

With respect to the enhanced match, it is best looked at as "front-loading." You may increase the match % and decrease the percentage to be matched as long the total match is at least as great as required under the basic formula. You can't, however, decrease the match % at any level and still meet the "as great" requirement.

For example, if you provide a 150% match on the first 3%, you are providing a total matching contribution of 4.5%. Under the basic match you would be providing a total match of 4%. This meets the requirment since you are equaling or exceeding the match required under the basic formula at every level.

A match of 80% of the first 5%, while providing a total 4% match overall, fails the "as great" requirement for salary deferrals between 1% and 4%. At 4%, the match is 3.2% which is less that the 3.5% required by the basic formula.

[Guest gsd]

I’m not sure I agree that you can layer a nonvested match on top of the safe harbor match.

Section VIB of the Notice gives three examples of matching contributions that satisfy the safe harbor ACP test - Safe Harbor under Basic Formula, Safe Harbor under Enhanced Formula, and Other Matching Contributions. It appears that if your plan is using a safe harbor matching formula, the Notice requires that there be no other matching contributions under the plan. I think the section dealing with other matching contributions (section VIB3 mentioned in the above post) applies to plans that are not using a match to satisfy the safe harbor (thus the example of the discretionary safe harbor and the forfeitable match).

If you use the matching safe harbor to meet the requirements, I would be hesitant to allocate an additional nonvested matching contribution on top of it.

[MWeddell]

Responding to gsd, Section VI(B)(4)(a) of the Notice makes it fairly clear to me that one can layer "additional" matching contributions on top of a safe harbor match. I read the introductory clause to Section VI(B)(3)(Other Matching Contributions) as applying to any plans that don't meet all of the requirements of VI(B)(1) or VI(B)(2), so that it can include plans where the match satisfies the ADP safe harbor.

I agree with all of David Shipp's comments.

As for Laura Millwood's original request to explain this stuff, I don't think I could improve on David Shipp's comments.

[Guest Do]

I agree with Shipp and MWeddell that a matching contribution (subject to vesting) on top of a safe harbor matching contribution is permissible. I disagree with gsd that forfeitable matches may be ACP safe harbor (under 98-52 VI.B.3.) if, and only if, the plan is ADP safe harbor by virtue of a safe harbor nonelective contribution. If that were the case, I think 98-52 would have spelled it out, like it did for ADP safe harbor matching contributions under the basic and enhanced formulas.

My worry about the additional layer of matching subject to forfeiture is a BaRF (401(a)(4)) violation. I see the additional layer as a separate matching feature and not part of one matching feature. If the mix participants receiving the additional layer has too many HCEs in relation to NHCEs, there could be BaRF violation. No? Yes?

[david shipp]

To Do, my assumption here would be that the second layer of match is available to the same group receiving the safe harbor match. On that basis I don't think there would be a BRF issue.

[david shipp]

To Do, my assumption here would be that the second layer of match is available to the same group receiving the safe harbor match. On that basis I don't think there would be a BRF issue.