ACP Testing for match exceeding Safe Harbor Match

[buckaroo]

I have a QACA plan that employs a match of 100% of the first 3% and 50% of the next 7%. (No A-T contributions.) I know that this match formula does not meet the ACP safe harbor requirements. I want to confirm what match figure I should be testing. My thought is that I should be testing any match that exceed 3.5% of compensation. A couple of my colleagues state that the basic QACA match formula should be applied and that the match calculated by this formula should be subtracted from the match calculated using the formula calculated in the document and that should be tested in the ACP test.

Example 1: A participant has a deferral percentage of 5%. Based on the formula in the plan document, the participant receives a match of 4%. My opinion is that we should be testing an ACP for this participant of .50% (4% - 3.5%). My colleagues believe that we should be testing an ACP of 1% (4% - 3%). The 3% is calculated based on applying the basic QACA matching formula (100% of the first 1% and 50% of the next 5%) to the participant's deferral rate. (My colleagues calc is, since his deferral rate is 5%, he should be calculated at 100% of the first 1% and 50% of the next 4%, giving him a calculation of 3%.)

Example 2: A participant has a deferral percentage of 2%. Based on the formula in the plan document, the participant receives a match of 4%. My opinion is that we should be testing an ACP for this participant of 0.0% (2% - 2%). My colleagues believe that we should be testing an ACP of .5% (2% - 1.5%). The .5% is calculated based on applying the basic QACA matching formula (100% of the first 1% and 50% of the next 5%) to the participant's deferral rate. (My colleagues calc is, since his deferral rate is 2%, he should be calculated at 100% of the first 1% and 50% of the next 1%, giving him a calcualtion of 1.5%.)

Any help and citations are greatly appreciated.

FYI - ACP run on all match contributions is failing. ACP run using my methodology is failing. ACP run using my colleagues methodology is passing.

[Tom Poje]

the regs were amended for

1.401(m)-2(a)(5)(iv). in case you do not have the latest copy, the change is indicated in bold

....by excluding matching contributions with respect to all eligible employees that do not exceed 4 percent (3.5 percent in the case of a plan that satisfies the ADP safe harbor under section 401(k)(13)) of each employee's compensation

If I read that word for word there is no mention of applying a 'plan formula' but simply excluding matching contribution that exceed a percent of comp.