Excess Safe Harbor Match

[Guest W Waldan Lloyd]

Employer has standard safe harbor 401(k) plan with safe harbor match formula (100% of first 3% deferral, 50% of next 2%). Employer has instituted auto-enrollment at 3% and auto-escalation up to 5% deferral rate, but now wants to increase auto-escalation for NHCEs to 7% with additional 50% match. Under Reg. 1.401(m)-3(d) this will blow up the matching safe harbor, so the plan will have to pass the ACP test. But what about the elective deferrals? Are they still treated as safe harbor? All deferrals or just those matched to the matching safe harbor limit of 6%? Regs appear to be silent on this. Any opinions or similar experiences?

[Tom Poje]

sounds like you have an enhanced match, which satisfies the ADP safe Harbor.

since the match is on greater than 6%, then ACP testing needs to be done, but you are permitted to exclude 4% from testing. ok, maybe only 3.5% since you are talking auto enroll. I would have to dig into the regs deeper to see what that says.

[Kevin C]

If this is a calendar year plan, I'd be concerned about whether you could really provide a compliant SH notice to eligible employees a reasonable period of time before the beginning of the plan year. The new match would need to be reflected in the SH notice.