SH that Excludes HCE's and Discretionary Match

[austin3515]

LEt's say the SH Match excludes HCE's. Are the hce's elligible for a discretionary match without running the ACP Test? i.e., would the ACP Safe Harbor still apply to them? [edit: of course, I would apply all of the ACP Safe Harbor Rules; such as not going over 4% of pay].

In my situtaion, I am trying to eat through some forfeitures, and none of the non-highly's deferred. In fact only owners deferred.

[DMcGovern]

Is the plan top heavy?

[austin3515]

Answer is yes, but it doesn't matter, becaise the whole basis for doing this is maintaining the "safe harbor only" status of the plan, thus preserving my th exemption.

[DMcGovern]

Answer is yes, but it doesn't matter, becaise the whole basis for doing this is maintaining the "safe harbor only" status of the plan, thus preserving my th exemption.

In the EOB, Chapter 11, Section XIV, Part H 2.d.2 it discusses variations on using forfeitures toward the safe harbor match. It states, "unless forfeitures are able to be used solely to reduce the [safe harbor] contributions, the allocation of forfeitures will have to be made as a non-safe-harbor contribution and the top heavy exemption would be lost by the plan.

It seems like since the HCE's are not eligible for the SH match, any other allocation would trigger the top heavy requirements? I could be wrong or missing something here, tho.

[austin3515]

This is not a safe harbor contribution. It is a matching contriubtion that is covered by the ACP Safe HArbor. There is a very important difference. In fact, my discretionary contributions do not have to be 100% vested when made, which is the hangup on using forfeitures for SH contributions.

[Tom Poje]

Haven't seen or heard such a thing being done before, but it sounds possible going through the different steps

1. does plan pass ADP safe harbor? yes, so now its ok to see if ACP safe harbor applies

2. Does combined match pass ACP safe harbor? appears to, based on the facts you stated. (even though HCE excluded from basic match, that is not an allocation condition on the discretionary)

I'd have a couple of concerns

1. if notice made no mention of discretionary match, I'd probably go thumbs down

2. if document doesn't cap match at 4% of comp, or any particular amount of deferral, but rather simply says discretionary, I'd go thumbs down as well. I don't think you can simply say "Of course the match will be capped at 4%". I vaguely recall most of the restated documents I've seen specifically mention the 4%.

but then, those are only opinions.

[austin3515]

I'd have a couple of concerns

1. if notice made no mention of discretionary match, I'd probably go thumbs down

They had the SPD, and I referenced the SPD in my SH Notice, so this does not bother me. Also, they had plenty of incentive to defer, just to get the SH Match.

2. if document doesn't cap match at 4% of comp, or any particular amount of deferral, but rather simply says discretionary, I'd go thumbs down as well. I don't think you can simply say "Of course the match will be capped at 4%". I vaguely recall most of the restated documents I've seen specifically mention the 4%.

We're using Corbel's PT, which asks us if we intend to use the ACP Safe Harbor. When we check that box, those provisions are all added automatically.

With respect to your latter point, I forget now if those provisions need to be hard-coded into the document, or whether or not they can be applied operationally? Obviously my document has no allocation conditions on receiving the match.

[DMcGovern]

Haven't seen or heard such a thing being done before, but it sounds possible going through the different steps

1. does plan pass ADP safe harbor? yes, so now its ok to see if ACP safe harbor applies

2. Does combined match pass ACP safe harbor? appears to, based on the facts you stated. (even though HCE excluded from basic match, that is not an allocation condition on the discretionary)

I'd have a couple of concerns

1. if notice made no mention of discretionary match, I'd probably go thumbs down

2. if document doesn't cap match at 4% of comp, or any particular amount of deferral, but rather simply says discretionary, I'd go thumbs down as well. I don't think you can simply say "Of course the match will be capped at 4%". I vaguely recall most of the restated documents I've seen specifically mention the 4%.

but then, those are only opinions.

But, wouldn't the allocation of the forfeitures as a discretionary match (even if it satisfies the safe harbor conditions) still trigger the top heavy requirements?

[QNPG]

Haven't seen or heard such a thing being done before, but it sounds possible going through the different steps

1. does plan pass ADP safe harbor? yes, so now its ok to see if ACP safe harbor applies

2. Does combined match pass ACP safe harbor? appears to, based on the facts you stated. (even though HCE excluded from basic match, that is not an allocation condition on the discretionary)

I'd have a couple of concerns

1. if notice made no mention of discretionary match, I'd probably go thumbs down

2. if document doesn't cap match at 4% of comp, or any particular amount of deferral, but rather simply says discretionary, I'd go thumbs down as well. I don't think you can simply say "Of course the match will be capped at 4%". I vaguely recall most of the restated documents I've seen specifically mention the 4%.

but then, those are only opinions.

But, wouldn't the allocation of the forfeitures as a discretionary match (even if it satisfies the safe harbor conditions) still trigger the top heavy requirements?

The additional discretionary matching contributions (allocation of the forfeitures as a disc match) would fall within the ACP safe harbor (within the ACP limts of course). So long as there are no other contributions outside of the ACP safe harbor such as "profit sharing" contributions which would be tested under 401(a)(4), the plan is still exempt from TH requirements.

Hope this helps.

[DMcGovern]

So I presented this scenerio to TAG and it was their response that since the HCEs are excluded from safe harbor contributions, the allocation could not be made as such - even if it is the additional match that meets the ACP safe harbor only and does not have the 100% vesting requirement. It's either a regular discretionary match which would be subject to testing & invoke the top heavy requirements, or it's a safe harbor match that no one is eligible for. With this in mind, TAG felt that the HCEs could not receive this allocation.

[QNPG]

So I presented this scenerio to TAG and it was their response that since the HCEs are excluded from safe harbor contributions, the allocation could not be made as such - even if it is the additional match that meets the ACP safe harbor only and does not have the 100% vesting requirement. It's either a regular discretionary match which would be subject to testing & invoke the top heavy requirements, or it's a safe harbor match that no one is eligible for. With this in mind, TAG felt that the HCEs could not receive this allocation.

Learn something new everyday. Thanks for sharing!

[austin3515]

When TAG and Tom Poje disagree, Tom Poje wins. I also submitted to Corbel and they agreed with Tom (and me). I think it's pretty widely accepted that TAG is not always right. QuirkyNerdyPensionGirl, you shouldn't give in so easily

[QNPG]

When TAG and Tom Poje disagree, Tom Poje wins. I also submitted to Corbel and they agreed with Tom (and me). I think it's pretty widely accepted that TAG is not always right. QuirkyNerdyPensionGirl, you shouldn't give in so easily

lol, darn!

[Tom Poje]

actually, the idiot at this keyboard indicated he was only expressing his own opinion.

I'd be careful taking either side.

for instance if the document says HCEs excluded from all safe harbors, then I'm not sure how you could allocate a discretionary match to them and treat it as a safe harbor. That would seem to be TAGs reasoning.

and with the way a lot of 'checkbox' documents are written that might be the case.

on the other hand if the document has a checkbox for excluding HCE from ADP safe harbor (rather than simply 'safe harbor') then I'd say you are probably ok.

all this begs the question with the AustinSpace question because we have no idea what his safe harbor notice said, what his document says, etc.

[austin3515]

Ours specicially excludes them from the Basi Safe Harbor MAtch only. It also clearly indicates that we're within the ACP Safe Harbor for all other matching contributions allowed under the plan. And again, I did hear from the document sponsor (Corbel) that this would work.

I'm surrprised that you keep raising the safe harbor notice quesiton since I did comply with the SH Notice requirement, in which I am allowed to reference the SPD.

So, assuming my document is drafted correctly (which it is), and assuming I sent out a SH Notice that complied with the regs (I need not go beyond that standard), then I'm troubled by where any conceivable pitfall may lie.

And by the way, tell whoever that idiot is to get the heck away from your keyboard

[Tom Poje]

ah but just like no two documents from different vendors are alike, this idiot figures no 2 safe harbor notices are alike, and so, while both may be in compliance one could be more restrictive than another. that was why the caution was issued. obviously an idiot's caution, because considering the individual who asked is the famous do-gooder Austin Power and arch enemy of evil, how could I have ever thought otherwise.