Basic SH Match & Discretionary Match

[Guest 4:15 Limit]

We are in the process of taking over the administration of a 401(k) plan that utilizes the basic safe harbor match. When we reviewed the prior year administration reports we noticed that the client is also making a discretionary match equal to 100% of deferrals (not limited to any % of compensation) in addition to the basic safe harbor match.

It is our understanding that any discretionary match in excess of 6% of pay must be ACP tested since the plan is safe harbor; however the prior TPA did not ever perform the ACP test.

Could someone please confirm that the plan must be ACP tested in years where the discretionary match is greater than 6% of pay?

Any input would be greatly appreciated. Thanks!

[rcline46]

I will confirm that any discretionary, non-SH match which exceeds 4% of pay must be tested. If the contribution on which the match is based may exceed 6% of pay, it cannot be a SH match.

[Tom Poje]

you are permitted to either test the ACP on all match or just match exceeding 4% (if I remember the regs correctly.)

[Guest 4:15 Limit]

Thank you!

[Tom Poje]

the reg cite is

(1.401(m)-2(a)(5)(iv))

[MWeddell]

I think rcline46's response fits your facts more accurately. Because discretionary match has been made on deferrals above 6% of pay, I don't think this is a 401(m) safe harbor plan. Therefore all match must be tested.

Caveat is that I didn't look up the regulations to verify this. I'll leave you with that homework.