QACA Dilemma

[Logan401]

Here's the dilemma:

Working on a plan transfer/merger.

Prior plan has a Qualified Automatic Contribution Arrangement.

They make a 100% of the 1st 1%, 50% of the next 5% match.

Vesting = 2/100%

Plan doc states that Forfeitures are not used to offset future contributions, but instead they are used to fund a discretionary contribution at year-end.

Prior plan administrator allocates the forfeitures pro rata to all participants.

Since discretionary contribution is made, you must run top heavy and indeed they are.

Client is informed they need to make an additional $6,500 required top heavy contribution.

Question: Does the QACA have the same top heavy rules as regular safe harbor that you can match up to 4% discretionary & not run top heavy?

Any other course of action that can be taken?

[Tom Poje]

since a discretionary was made then it would be my understanding the 'get out of top-heavy for free' rules no longer apply.

unless the document states that match can not be used to satisfy top-heavy, it would be my understanding you could use that match to satisfy top-heavy as well.

[Logan401]

If they made up to a 4% discretionary match instead of a ps, that would have kept them safe, correct?

[Tom Poje]

if the discretionary match met the safe harbor requirements (e.g. no eligibility requirements and was capped at 4% of comp) then it would meet the safe harbor requirements, and that would be ok.

[Guest Sieve]

. . . assuming the document's forfeiture provision allowed forfeitures to be used for any discretionary emplolyer contribution (& not just a discretionary PS contribution).