Multiple Match Safe Harbor

[ConnieStorer]

I have a potential client who sent me an illustration from a competitor. They called the plan design a "Multiple Match401(k) Program. I have seen many illustrations over the years but none quite like this. The plan is set up as a profit sharing plan with the safe harbor match provision. Then, on top of the 4% match they allocate a 100% match titled "Fixed Required Match". The next allocation is titled "Optional 4% Match" where they allocate an additional 4%. Under this scenario the client ends up with a deferral of $16,500 and a match of $32,500.

The claim (according to the potential client) is that since the additional matching amounts are based on the original safe harbor match then the whole matching contribution amount is not subject to testing. I see both a failure to provide Top Heavy minimums since the plan is providing more than the 4% safe harbor match along with a failure of the ACP test.

Has anyone heard of any such loophole in the regs?

[Guest matt2800]

I have a potential client who sent me an illustration from a competitor. They called the plan design a "Multiple Match401(k) Program. I have seen many illustrations over the years but none quite like this. The plan is set up as a profit sharing plan with the safe harbor match provision. Then, on top of the 4% match they allocate a 100% match titled "Fixed Required Match". The next allocation is titled "Optional 4% Match" where they allocate an additional 4%. Under this scenario the client ends up with a deferral of $16,500 and a match of $32,500.

The claim (according to the potential client) is that since the additional matching amounts are based on the original safe harbor match then the whole matching contribution amount is not subject to testing. I see both a failure to provide Top Heavy minimums since the plan is providing more than the 4% safe harbor match along with a failure of the ACP test.

Has anyone heard of any such loophole in the regs?

4% basic match, 6% fixed match and 4% discretionary match? Meets the ADP and ACP safe harbor and has been shown for years. Problem is that if the Plan is properly communicated, nobody turns down a 14% contribution for putting 6% of pay into the Plan.

[Bill Presson]

I have a potential client who sent me an illustration from a competitor. They called the plan design a "Multiple Match401(k) Program. I have seen many illustrations over the years but none quite like this. The plan is set up as a profit sharing plan with the safe harbor match provision. Then, on top of the 4% match they allocate a 100% match titled "Fixed Required Match". The next allocation is titled "Optional 4% Match" where they allocate an additional 4%. Under this scenario the client ends up with a deferral of $16,500 and a match of $32,500.

The claim (according to the potential client) is that since the additional matching amounts are based on the original safe harbor match then the whole matching contribution amount is not subject to testing. I see both a failure to provide Top Heavy minimums since the plan is providing more than the 4% safe harbor match along with a failure of the ACP test.

Has anyone heard of any such loophole in the regs?

Connie, it's often called a triple stacked match or just a stacked match. If you do a search on those terms, either here or on google, you might find more info as well.

[ConnieStorer]

I have a potential client who sent me an illustration from a competitor. They called the plan design a "Multiple Match401(k) Program. I have seen many illustrations over the years but none quite like this. The plan is set up as a profit sharing plan with the safe harbor match provision. Then, on top of the 4% match they allocate a 100% match titled "Fixed Required Match". The next allocation is titled "Optional 4% Match" where they allocate an additional 4%. Under this scenario the client ends up with a deferral of $16,500 and a match of $32,500.

The claim (according to the potential client) is that since the additional matching amounts are based on the original safe harbor match then the whole matching contribution amount is not subject to testing. I see both a failure to provide Top Heavy minimums since the plan is providing more than the 4% safe harbor match along with a failure of the ACP test.

Has anyone heard of any such loophole in the regs?

Connie, it's often called a triple stacked match or just a stacked match. If you do a search on those terms, either here or on google, you might find more info as well.

Thanks, I will look that up.

[Tom Poje]

if you can't find it, its here:

http://www.relius.net/News/TechnicalUpdates.aspx?ID=390

In such cases, I would make sure I had signed copies of those NHCEs who choose not to defer, for example

"I realize the plan's match is well over 250% of up to 4% I defer and I am just too plain stupid to take advantage of it. so what if my boss gets a free ride on testing and I get zippo in return."

you need to protect the client - if the plan was audited and no one defers but the HCE it looks like no one was ever told.

[bevfair]

Am I understanding this correctly? The client has SH match of 100% up to 4%. Then an add'l 100% up to 6% and this satisfies ADP and ACP safe harbors? What about the requirement that it not exceed 4% of compensation?

To add a twist to Connie's scenario, if the client put in the 3% non-elective and then a fixed match of 100% up to 6%, does this too also satisfy the ADP/ACP safe harbors?

Thanks.

[Tom Poje]

if the match is discretionary it has to be capped at 4% comp, but if its required as long as you are not matching above 6% deferred (not 6% of comp) you can provide whatever %. But remember, it is required.

thats why it looks really bad if you are providing a 200% match up to 6% deferred and only the HCEs are deferring. it smells bad. especially if the deferral elections signed by the NHCEs are 0 and there is blood sweat and tears all over the enroollment forms.

[Lou S.]

To add a twist to Connie's scenario, if the client put in the 3% non-elective and then a fixed match of 100% up to 6%, does this too also satisfy the ADP/ACP safe harbors?

Thanks.

No problem. We have a plan with this exact set up.

[Guest JeffRed]

if you can't find it, its here:

http://www.relius.net/News/TechnicalUpdates.aspx?ID=390

In such cases, I would make sure I had signed copies of those NHCEs who choose not to defer, for example

"I realize the plan's match is well over 250% of up to 4% I defer and I am just too plain stupid to take advantage of it. so what if my boss gets a free ride on testing and I get zippo in return."

you need to protect the client - if the plan was audited and no one defers but the HCE it looks like no one was ever told.

Tom, I know you posted this a while ago so I hope you see this reply and thanks for always refrencing your answers and providing great info. Is there a limit to the percentage match for the fixed portion of the stacked match. Could you do 200% up to 6%?

[Monica Barnard]

And I'm making the assumption that this would need to be documented and provided to the participants prior to the start of the plan year. Otherwise, couldn't Dr. D amend plan now (calendar year plan) to add fixed match for this calendar year?

[John Feldt ERPA CPC QPA]

Agreed. The provisions need to be in place before the start of the plan year and the SH notice must be provided a reasonable period of time before the start of the plan year.