403(b) Safe Harbor Match for ACP Test

[HarleyBabe]

I am confused and need clarification. If I have a 403(b) Plan that wants to implement a safe harbor match in order to avoid ACP testing, are the rules the same as 401(k) Plans? I'm having great difficulty finding information specifically for the safe harbor match in a 403(b)? The specific issue is, the elective contributions part of the 403(b) is immediate entry. The want to to put a 1 year wait on the safe harbor match. In my mind, which is with 401(k) plans, is that no, can't if you are eligibile to defer you are eligible for the safe harbor match unless you are utilizing the statutory exclusions. However, there is no 401(k) testing in an 403(b) plan so it's really unrelated. Question is, what are the eligibility restrictions when you are trying to implement a safe harbor match for ACP testing in the 403(b)? Also, can you point me where you found the answers?

Thanks.

[PensionPro]

See §1.401(m)-3(d)(4). I believe the answer is no.

[Kevin C]

Yes, you can require a year of service to receive the SH match. The match in a 403(b) is subject to the same 401(m) rules that apply to the match in a 401(k) Plan.

The 403(b) document we use allows you to require age 21, a year of service and semi-annual entry to receive the SH contribution. Or you can use the eligibility requirements for the regular match or the PS contribution.

Start with the definition of "Plan" in 1.401(m)-5. It refers you to 1.401(m)-1(b)(4). The last part of -1(b)(4)(iv)(A) deals with treating a plan as two separate plans, one plan comprising all eligible employees who have met the minimum age and service restrictions of section 410(a)(1) and one plan comprising all eligible employees who have not. 1.401(m)-3 has the rules a "plan" must meet to be SH.

But, note that if the otherwise excludables do not receive the SH, then the plan comprised of those otherwise excludables is not SH, even if the plan comprised of the non-excludables is SH. See 1.401(m)-3(j)(3). That will only be an issue if you have an HCE in the otherwise excludable group.

[PensionPro]

Yes, you can use the statutory exclusions and provide the safe harbor match to the nonexcludible employees. However, I do not think the OP was asking about statutory exclusions. If not using statutory exclusions, the plan must meet the requirements of §1.401(m)-3(d)(4). I agree with this statement made by the OP:

"if you are eligibile to defer you are eligible for the safe harbor match unless you are utilizing the statutory exclusions."

[Kevin C]

If not using statutory exclusions, the plan must meet the requirements of §1.401(m)-3(d)(4). I agree with this statement made by the OP:

"if you are eligible to defer you are eligible for the safe harbor match unless you are utilizing the statutory exclusions."

I guess I don't understand your statement. If you want the "plan" to be ACP safe harbor, then it must satisfy all of 1.401(m)-3, including 1.401(m)-3(d)(4).

The issue is: what is the "plan"? If you are applying 410(b) separately to those who could be excluded, then you have two separate "plans" for testing. One "plan" covers the employees who have satisfied the lower minimum age and service conditions in the plan, but have not satisfied the maximum statutory age and service conditions. The other "plan" covers employees who have satisfied the maximum statutory age and service conditions. See 1.410(b)-7©(3).

Suppose you have a plan that provides for immediate eligibility for deferrals and requires 6 months of service with semi-annual entry to receive employer contributions, including the SH match. You choose to treat it as two separate plans under 410(b) because otherwise, as you point out, it won’t be SH.

The first “plan” to test is the eligible employees who satisfy age 21, one year of service and semi-annual entry. All eligible employees in this "plan" are eligible for the SH match. So, assuming no other problems, this “plan” is SH.

The other “plan” is the eligible employees have not satisfied age 21, one year of service and semi-annual entry. This is all eligible employees who are not in the first “plan”. This includes some who are only eligible to defer and some who are also eligible for the SH match. This “plan” does not satisfy 1.401(m)-3, so it is NOT SH. Also see 1.401(m)-3)(j)(3). But, do you really care? In most cases, this “plan” will not include any HCE’s, so it will pass ACP. If an owner’s family member is in this plan, then they may get a refund their first year. In a 403(b), the sponsor is a non-profit, which doesn’t typically have owners.

[HarleyBabe]

If not using statutory exclusions, the plan must meet the requirements of §1.401(m)-3(d)(4). I agree with this statement made by the OP:

"if you are eligible to defer you are eligible for the safe harbor match unless you are utilizing the statutory exclusions."

I guess I don't understand your statement. If you want the "plan" to be ACP safe harbor, then it must satisfy all of 1.401(m)-3, including 1.401(m)-3(d)(4).

The issue is: what is the "plan"? If you are applying 410(b) separately to those who could be excluded, then you have two separate "plans" for testing. One "plan" covers the employees who have satisfied the lower minimum age and service conditions in the plan, but have not satisfied the maximum statutory age and service conditions. The other "plan" covers employees who have satisfied the maximum statutory age and service conditions. See 1.410(b)-7©(3).

Suppose you have a plan that provides for immediate eligibility for deferrals and requires 6 months of service with semi-annual entry to receive employer contributions, including the SH match. You choose to treat it as two separate plans under 410(b) because otherwise, as you point out, it won’t be SH.

The first “plan” to test is the eligible employees who satisfy age 21, one year of service and semi-annual entry. All eligible employees in this "plan" are eligible for the SH match. So, assuming no other problems, this “plan” is SH.

The other “plan” is the eligible employees have not satisfied age 21, one year of service and semi-annual entry. This is all eligible employees who are not in the first “plan”. This includes some who are only eligible to defer and some who are also eligible for the SH match. This “plan” does not satisfy 1.401(m)-3, so it is NOT SH. Also see 1.401(m)-3)(j)(3). But, do you really care? In most cases, this “plan” will not include any HCE’s, so it will pass ACP. If an owner’s family member is in this plan, then they may get a refund their first year. In a 403(b), the sponsor is a non-profit, which doesn’t typically have owners.

I am still confused and let me say why. If this was a 401(k), I am totally on board, but it's 403(b) where there is no ADP testing. My understanding that is yes, if you are eligible to defer you are eligible for the match, period, unless you are using the otherwise excludable group in a 401(k), but how is this affected when it's a 403(b) because the first part of satisfying the safe harbor match provisions is satisfying the ADP safe harbor but there is none. Does that make sense. I am just really confused. HELP

[HarleyBabe]

If not using statutory exclusions, the plan must meet the requirements of §1.401(m)-3(d)(4). I agree with this statement made by the OP:

"if you are eligible to defer you are eligible for the safe harbor match unless you are utilizing the statutory exclusions."

I guess I don't understand your statement. If you want the "plan" to be ACP safe harbor, then it must satisfy all of 1.401(m)-3, including 1.401(m)-3(d)(4).

The issue is: what is the "plan"? If you are applying 410(b) separately to those who could be excluded, then you have two separate "plans" for testing. One "plan" covers the employees who have satisfied the lower minimum age and service conditions in the plan, but have not satisfied the maximum statutory age and service conditions. The other "plan" covers employees who have satisfied the maximum statutory age and service conditions. See 1.410(b)-7©(3).

Suppose you have a plan that provides for immediate eligibility for deferrals and requires 6 months of service with semi-annual entry to receive employer contributions, including the SH match. You choose to treat it as two separate plans under 410(b) because otherwise, as you point out, it won’t be SH.

The first “plan” to test is the eligible employees who satisfy age 21, one year of service and semi-annual entry. All eligible employees in this "plan" are eligible for the SH match. So, assuming no other problems, this “plan” is SH.

The other “plan” is the eligible employees have not satisfied age 21, one year of service and semi-annual entry. This is all eligible employees who are not in the first “plan”. This includes some who are only eligible to defer and some who are also eligible for the SH match. This “plan” does not satisfy 1.401(m)-3, so it is NOT SH. Also see 1.401(m)-3)(j)(3). But, do you really care? In most cases, this “plan” will not include any HCE’s, so it will pass ACP. If an owner’s family member is in this plan, then they may get a refund their first year. In a 403(b), the sponsor is a non-profit, which doesn’t typically have owners.

I am still confused and let me say why. If this was a 401(k), I am totally on board, but it's 403(b) where there is no ADP testing. My understanding that is yes, if you are eligible to defer you are eligible for the match, period, unless you are using the otherwise excludable group in a 401(k), but how is this affected when it's a 403(b) because the first part of satisfying the safe harbor match provisions is satisfying the ADP safe harbor but there is none. Does that make sense. I am just really confused. HELP

Now to add to this further, lets say we are writing the plan, immediate entry, but only those who have met the statuatory exclusions are receiving the safe harbor match, how would you write that in the document? Curious. I have document writers, (legal folks who don't actually do the admin)sorry if I have offended anyone, that seem to be using some pretty loose language. Just give an example. Thanks

[PensionPro]

I hope I can clarify your question without adding confusion. The 403(b) regs say that match contributions to a 403(b) plan must meet the requirements of section 401(m). So you can utilize the safe harbor approach or the ACP testing approach to meet the requirements of section 401(m). If utilizing the safe harbor approach, you must meet the requirements for the ACP safe harbor. As you pointed out, the ADP safe harbor requirements are not relevant. You can use the statutory exclusion rule as long as your otherwise excludible employees group passes the ACP test -- either because there are no HCEs, or because the numbers work out. Otherwise you will need to correct the ACP failure.

You are not testing the deferrals (either through the ADP test or through the ADP safe harbor), but you are testing the match under 401(m).

I have seen documents (I think it was a Corbel VS) that state that only those who meet the statutory requirements will/may be eligible for the safe harbor match contributions. I think most pre-approved documents will have similar language.

[Kevin C]

Our GUST prototypes had similar language. We switched document providers for the EGTRRA versions. As I said in my post #3, our EGTRRA prototypes and VS documents have more flexibility than what you are describing. We use the 403(b) document from the same company. It has the same SH eligibility options as the 401(k). The adoption agreement section is pretty simple and straight forward.

The first part of the 401(m) safe harbor is to satisfy the safe harbor contribution requirement of either 1.401(k)-3(b) or -3©. It doesn't say you have to satisfy all of the ADP SH rules, just the contribution requirement.

When you apply 401(m) to a 403(b) plan, why would that be any different than applying 401(m) to a 401(k) plan with the same match provisions and immediate eligibility for deferrals? It's the same 401(m) rules in both situations. The 401(m) portion of both plans are mandatorily disaggregated for testing.