Enhanced Discretionary Safe harbor Match

[SheilaD]

I have an employer who elected and gave notice for a safe harbor match for 2011. They want to increase the match to 100% match up to 6% of pay for 2011 and not lose either their ADP or ACP safe harbor. It is too late to amend the safe harbor for 2011 as that would kick them out of safe harbor. However a discretionary match that does not exceed 4% of pay is generally allowed. Am I correct that since the discretionary is not > 4% and we are not matching above 6% of pay deferrals they are OK for 2011? I've been reading the regulations and I keep getting caught up in the distinctions between fixed formula enhanced match and discretionary enhanced match rules. My concern is that if I look at the match as if it actually comprised of two matches - the safe harbor and the discretionary than I have an increasing match on the discretionary side ... it doesn't kick in until you defer in excess of 3% of pay. Or I may have just over-thunk the scenario.

Followup questions are:

If I am still safe in ADP and ACP safe harbor land - I presume that the discretionary match would have to be treated as a safe harbor match ? (i.e. 100% vest and limits on distributions).

If I am kicked out of ACP safe harbor I still retain my ADP safe harbor and just have to test the total match under ACP? I could then subject the discretionary match to vesting. Any other concerns?

In a perfect world they would like to apply the additional match only to contributions made after a certain date. I don't think I could do that with ACP safe harbor retained, but what if I am ACP testing?

No matter how 2011 works out they want to amend to a formula fixed match for 2012 which removes the uncertainties of 2011.

Any thoughts would be greatly appreciated.

[Tom Poje]

if your document permits both a discretionary match and a safe harbor match then

1. of course you will have to provide the SHMAC and the ADP test is covered

2. You might have ACP testing depending on how much and at what rate the match is provided, and you are permitted to test all match or even exclude 4% of the match from the ACP test.

if the document does not have a discretionary match, then my understanding is that you can not add that for this year.

[SheilaD]

if your document permits both a discretionary match and a safe harbor match then

1. of course you will have to provide the SHMAC and the ADP test is covered

2. You might have ACP testing depending on how much and at what rate the match is provided, and you are permitted to test all match or even exclude 4% of the match from the ACP test.

if the document does not have a discretionary match, then my understanding is that you can not add that for this year.

Thank you -- The plan allows a discretionary match. In order to meet the safe harbor ACP test, I wanted to be sure that when testing if the RATE of match is increasing I test the combined SHMAC and discretionary match not the discretionary match alone. Otherwise my discretionary match meets the requirements of not exceeding 4% of pay, being available to all, and not matching any deferrals in excess of 6% of pay.

Followup question on whether the discretionary portion must be subject to the safe harbor rules on vesting and distribution restrictions. I think so but would like confirmation.

A second followup question on if it is possible to apply the discretionary match for a partial year and remain in ACP safe harbor -- once again I don't think so but the client is asking.

Thanks again.

[Tom Poje]

yes you can have vesting on the discretionary but not alloaction conditions.

sent you an example taken from the Erisa Outline Book.