Safe Harbor Match plus Discretionary Match

[Bruddah Kimo]

Here's the situation: I have a new client which currently offers a 401k Plan with an Employer Match equal to 100% of the first 9% deferred. The match is immediately 100% vested. I am wondering if I should make this a Safe Harbor plan to give me an automatic pass on the ADP test. I understand the match formula will not provide a pass for ACP testing. I have a couple of questions:

Is it OK to offer Safe Harbor Match of 100% on the first 4% of deferrals made and regular Employer Match of 100% on the next 5% deferred? I have not been able to find an example of this type of formula in the various examples cited in IRS examples and trade articles. Why not offer a Safe Harbor Match of 100% of the first 9% deferred? That would be easy, but right now the employer monies are available for hardship withdrawals. Making all 9% match ineligible for hardship withdrawals might make the decision to go Safe Harbor more difficult for the sponsor. I thought if only 4% were made Safe Harbor they may be more apt to adopt the Safe Harbor provisions.

Has anyone seen this type of formula used in a Plan?

[Jim Chad]

I believe that this will require all match contributions to be tested for ACP, because you are matching deferrals in excess of 6%.

[Bruddah Kimo]

In realize I'll need to run a ACP test (see reference in my post 'I understand the match formula will not provide a pass for ACP testing') - but the big question is can I have a Safe Harbor Match of 100% on the first 4% deferred and a discretionary Employer Match of 100% of the NEXT 5% deferred?

[Lou S.]

In realize I'll need to run a ACP test (see reference in my post 'I understand the match formula will not provide a pass for ACP testing') - but the big question is can I have a Safe Harbor Match of 100% on the first 4% deferred and a discretionary Employer Match of 100% of the NEXT 5% deferred?

No because you have an increasing discretionary match which would be described

0% of the 1st 4% PLUS

100% from 4 - 9%

That doesn't satisfy the safe harbor match rules.

[Bruddah Kimo]

That's what I was afraid of - it is all Safe Harbor Match or nothing then for this Plan. Thank you!

[rcline46]

A SH match cannot be on more than 6% of pay. So there is no way you can construe a match on up to 9% of pay to be a SH match.

[Tom Poje]

what exactly do you mean by "Can I have ....."

are you talking the ADP test or ACP test?

Obvioulsy you fail the ACP safe harbor.

But for ADP purposes, did you satisfy the safe harbor?

remember, any discetionary matches are never applicable to the ADP test.