Employer match in Safe Harbor 401k

[Lori H]

I apologize if this topic has been touched on before, but if a safe harbor that utilizes the basic safe harbor match....is there a limit on how much the plan can fund towards an additional employer match that is subject to vesting? Lets say they wanted to do a 50% on deferrals up to 8 percent of comp in addition to the Safe Harbor basic match?

Thanks

[Tom Poje]

that depends on whether you want to ACP test the discretionary match or not.

you can only match up to 6% deferred and 4% comp and still be safe harbor.

in other words, the perfect discretionary match is a 66.6% match up to 6% deferred which then equals 4% of comp

[Lori H]

that depends on whether you want to ACP test the discretionary match or not.

you can only match up to 6% deferred and 4% comp and still be safe harbor.

in other words, the perfect discretionary match is a 66.6% match up to 6% deferred which then equals 4% of comp

Thanks Tom.

[Guest Sieve]

To clarify Tom's statement . . .

A non-safe harbor match--i.e., the match that does not make the plan a SH plan--has 2 separate limitations:

• the match cannot be made with respect to contributions exceeding 6%; and
  
• if the match is discretioanry, it cannot exceed 4% of compensation.
  

So, if the match is not discretionary, it can exceed 4% of comp.--it just cannot be based on more than 6% of comp. If it's discretionary, then both limits apply. (See Treas. Reg. Section 1.401(m)-3(b)(3).)

Of course, a SH plan can meet ADP safe harbor but still be required to pass ACP testing if the discretionary match is too high and does not meet the applicable limits.

Does anyone know whether the SH match itself is limited by the 6% of comp. requirement? In other words, can an enhanced SH match be 100% up to 15% of comp? It seems to be allowed by Treas. Reg. Section 1.401(k)-3(b)(3)--and I do not believe that Reg. 1.401(m)-3(b)(3) applies to the SH match, but just to the non-safe harbor match. Thoughts?

[Tom Poje]

you could have an enhanced match, for example of 100% up to 8% deferred.

that will satisfy ADP safe harbor.

it will not satisfy ACP safe harbor.

per the regs, your acp test would either be all match, or you could exclude 4% of match (or 3.5% if you have a QACA)

[Guest Sieve]

Tom --

A follow-up to my last post . . .

I have always thought that the use of the word "discretionary" in the 1.401(m)-3 regs (re: match safe harbor) does not refer simply to a non-SH match, but refers to a match which is truly discretionary (i.e., the employer can elect to make a matching contribution or not, like a discretionary PS contribution). Therefore, a non-SH match which is specified in the document--for example, 100% on the first 6% of compensation--should not violate the 4% rule for discretionary matching contributions (Reg. 1.401(m)-3(d)(3)(ii)) because it is not truly discretionary (since it is pursuant to a formula in the document).

Therefore, assume there's a typical SH match, and then an additional match specified in the document which is subject to vesting. Couldn't the non-SH match be delineated as 250% on the first 6% of compensation (as limited by Reg. -3(d)(3)(i)) and still meet ACP safe harbor?

[Tom Poje]

that would be my understanding as well, if you have a required match in addition to a safe harbor match then as long as you limit to 6% deferred there is no requirement to limit to 4% of comp.

Though, if a match is really that generous then I don't see the reason for a safe harbor in the first place.

How can such a plan fail testing unless the NHCEs are really that dumb. good grief, can you imagine passing up the opportunity to receive that much match?

[K2retire]

How can such a plan fail testing unless the NHCEs are really that dumb. good grief, can you imagine passing up the opportunity to receive that much match?

Most of us who work in this field can't imagine it, but the folks at Corbel used to propose using such a match instead of cross testing because they believed that most NHCEs would still not defer much.

[Guest Tbrown]

that would be my understanding as well, if you have a required match in addition to a safe harbor match then as long as you limit to 6% deferred there is no requirement to limit to 4% of comp.

Though, if a match is really that generous then I don't see the reason for a safe harbor in the first place.

How can such a plan fail testing unless the NHCEs are really that dumb. good grief, can you imagine passing up the opportunity to receive that much match?

Tom,

I have a client right now, 1 owner and 10 employees. She pays the employees very well and provides nice benefits. Because of her age (she is relatively young), new comp did not work. So we went with a SH Match, a fixed match, and a discretionary match. If someone defers 6% of pay they get a 13% match. We have had 2 employee meetings, laid it all out for them, and there are still 5 people who do not defer and only 2 that defer at least 6%. It doesn't make much sense to me. But some people just don't get it. We kept it safe harbor because she was convinced that deferral rates would still be low and she was right.

[Tom Poje]

and everyone blames the government for the economy problems. hmmm. makes you wonder

[Guest Sieve]

By the way . . . is your face green from reading the regs, or are you really the Grinch?

[Tom Poje]

that's really me. this time of year I take off my mask so people can see what I really look like.