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403(b) and Safe Harbor


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403(b) for a 501©(3) with matching contributions and they are interested in safe harbor to avoid ACP.

The Matching contributions must fall within the parameters of contribution minimums and maximums for matching contributions to avoid the ACP test under 401(m). These Matching contributions are not being used to automatically satisfy ADP since there is no ADP test.

Do these matching contributions used to satisfy ACP have to be immediately 100% vested?

I understand the other requirements for ACP safe harbor, i.e., no allocation restrictions, no hardship w/d need to be satisfied but wondering about vesting, since additional Matching in a 401(k) could satisfy ACP without being 100% vested. Thanks

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The first requirement for satisfying the ACP safe harbor is that you first satisfy the ADP safe harbor. How do you satisfy the ADP safe harbor when ADP doesn't exist?

I wouldn't implement a matching contribution, but instead use a nonelective if they are adverse to testing.

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If you are talking about a basic safe harbor match or an enhanced safe harbor match, yes they would have to be 100% vested. If you are talking about a discretionary match (limited to 4% of comp, etc.) along with an ACP safe harbor contribution, the discretionary piece can be subject to a vesting schedule. It's the same rules that apply to the ACP safe harbor for 401(k) plans.

Here is the first part of 1.401(m)-3

§1.401(m)-3. Safe harbor requirements

(a) ACP test safe harbor. --Matching contributions under a plan satisfy the ACP safe harbor provisions of section 401(m)(11) for a plan year if the plan satisfies the safe harbor contribution requirement of paragraphs (b) or © of this section for the plan year, the limitations on matching contributions of paragraph (d) of this section, the notice requirement of paragraph (e) of this section, the plan year requirements of paragraph (f) of this section, and the additional rules of paragraphs (g), (h) and (j) of this section, as applicable. Pursuant to section 401(k)(12)(E)(ii), the safe harbor contribution requirement of paragraphs (b) and © of this section must be satisfied without regard to section 401(l). The contributions made under paragraphs (b) and © of this section are referred to as safe harbor nonelective contributions and safe harbor matching contributions, respectively.

(b) Safe harbor nonelective contribution requirement. --A plan satisfies the safe harbor nonelective contribution requirement of this paragraph (b) if it satisfies the safe harbor nonelective contribution requirement of §1.401(k)-3(b).

© Safe harbor matching contribution requirement. --A plan satisfies the safe harbor matching contribution requirement of this paragraph © if it satisfies the safe harbor matching contribution requirement of §1.401(k)-3©.

1.401(k)-3© refers to the "qualifed matching contribution" that must be made to satisfy the requirements. A QMAC is 100% vested.

ERISAnut, all I can say is I don't agree with you.

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In order for a 403(b) plan to meet ACP safe harbor requirements, you first must meet the ADP nonelective safe harbor or matching safe harbor standards. I do not believe, as -nut indicates, that there also must be deferrals otherwise testable under ADP, because the statute does not require that there be testable deferrals (IRC Section 403(b)(12)(A)(i)) nor do the regs under 401(m) require that there first must be an ADP test in order to have a SH match (see the reg. quoted by Kevin C, especially "[m]atching contributions under a plan satisfy the ACP safe harbor provisions of section 401(m)(11) for a plan year if [among other things] the plan satisfies the safe harbor contribution requirement . . . " (emphasis added)).

So, PMC, I don't believe you can have a 403(b) match safe harbor with only a non-SH matching contribution subject to a vesting schedule. You first must have an ADP SH contribution (either non-elective, or match) which is fully vested.

But, -nut, I don't think you're required to have testable salary deferrals, or else IRC Section 403(b)(12)(A)(i) simply would not permit a 403(b) plan SH match (since 403(b) plans do not have testable salary deferrals).

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