BRF Testing for this Match formula

[30Rock]

Can anyone advise as to whether the following tiered match formula requires BRF testing? The rate of match increases as the deferrals increase, which could be discriminatory. But there are no age or service restrictions.

0-3% deferrals = 0% match

4% deferrals = .75 match

5% deferrals = 1.5% match

6% deferrals = 2.25%

Thank you

[Tom Poje]

yes you have to perform testing, because most likely the people who can take advantage of the 6% deferral rate are HCEs.

technically you have 4 tests, though for test how 1

How many people deferred at least 3% would be 100% so that would always pass.

[30Rock]

Thanks, so to recap - they need to do 1. ACP test, 2. BRF test, both tiers? Current availability and effective?

Is there another test?

[Tom Poje]

you will always have an ACP test.

technically everyone could defer the max, so the formula is currently available to all employees.

so then it becomes an effective availabilty test, which there really isn't a mathametical test

but then how do you prove it? (And you know in your heart not all the NHCEs can take advantage of higher deferral rates)

I've leaned toward 1.410(b)-4 for non discrimination classification test and follow guidelines are given for facts and circumstances. e.g.

ratio % is greater than unsafe harbor percentage, extent avg ben 5 test passes, etc...

(just so I would have a mathematical test I could run)

4 brf tests (in as simplistic term as I can put it)

1. who deferred at least 3% - which has to be 100% unless you have people who are excluded)

2. who deferred at least 4%

3. who deferred at least 5%

4. who deferred at least 6%

with no match on the first 3% this sounds similar to a question raised at the ASPPA conference a few years ago about whether you could start a QACA at 6% and the response was "Yes, but..." meaning if the initial rate was sert so high not everyone could take advantage of it you could have problems, and it becomes an issue of effective availability,

agains, there is no mathematical, so how do you prove it? I'd hold if you can pass ratio percentage tests for the groups then you are certainly ok. if you fail ratio %, then its a little harder - but what other facts and circumstances effect things.

[30Rock]

Tom - thank you. Is this something you would normally test? The position of my provider is not to run effective availability tests, I am wondering if plans normally do this?

Also didn't the IRS question a 10% QACA level, or was it really 6%?

[rcline46]

We always run effective availability tests on tiered matching formulas because they fail about 90% of the time using the unsafe harbor percent. They just don't work.

[Tom Poje]

you are correct, the IRS comment might have been in regards to 10% rather than 6%. my point was merely that something may be currently available, but might not be effectively available.

if using Relius, I have a custom report that test BRF based on svc, but if you are any good with tinkering, it should be possible to modify the formulas to look at % deferred

the few match formulas we have based on service have never failed, so I guess we are luckier then Mr. RCline

[PanamaTim]

Resurrecting this post for a follow-up question...

If you have a non-uniform match for a plan that excludes HCEs from the match, is there any need to prove current availability?  The match provides a lower rate for those making over 75k, so the higher rate of match is only available if earnings are less than 75k.  Since all are NHCEs, is this even an issue? 

[Belgarath]

if all HCE's are excluded, not an issue. 

[C. B. Zeller]

Does the match actually exclude HCEs though, or is it based solely on comp? Because you could have an employee who is a 5% owner (including a deemed 5% owner by attribution) who is HCE even if their comp is less than $75k.

And if the $75k is determined in the current year, you could have an employee who is HCE because they made over the HCE limit in the prior year, but under $75k in the current year.

[PanamaTim]

Good call out.  The Document will be set up to exclude HCEs from match.  So no concern there.  I was just weary of having a group of NHCEs with a higher match rate than others.  I didn't know if that was an availability issue.  Glad to get Belgarath's opinion.  

[C. B. Zeller]

In that case I agree with Belgarath. The law only says you can not discriminate in favor of HCEs; you can discriminate in favor of NHCEs all you like.