match differentials with HCE's benefitting

[Guest RS Vatalaro]

Must the general test or any other special tests be completed if an employer contributes different levels of match for differing levels of years of service (assuming this allowable in the first place) if HCE's participate in the match. A client is considering a greater match for ee's with greater years of service than for those of lesser years. As w/ most plans, the owners have been around the longest. I'd appreciate any thoughts on special issues that should be looked at in this situation.

[Guest Dook]

Yes, it is an allowable formula. you are correct in your assumption that it will be subject to the general test. the test will have to be run on each rate group in which an HCE is benefitting.

With the HCEs in the longer service groups and presumably the higher rate groups... GOOD LUCK!

[Dowist]

I think the proper analysis is that the matching contributions would have to meet 2 tests:

1. the 401(m) test determines whether it is discriminatory (not the general test), and

2. different levels of matching contributions have to meet the "availability test" of the 401(a)(4) regulations.

[Guest]

what they mean, for example:

100% match if 5 years or more

50 % match if less than 5 years

>= 5 years HCE=5,NHCE=4

Total ees HCE=5,NHCE=20

ratio % for >=5 years is (4/16)/(5/5)

= 25%

nhce concentration % = 20/25 = 80%

safe harbor for 80% is 35%, thus plan fails.

[This message has been edited by Tom Poje (edited 08-25-1999).]