Safe Harbor

[Guest andmik]

Any feedback would be appreciated.

I have a current plan that is a safe harbor match plan with a formula of 400% of the first 2%.

The prototype for the enhanced match section reflects that the match percentage must be at least 100% (so 400% works fine, but then the section for the salary deferral to be matched has a parenthetical indicating that no less than 3% can be inserted.

As this 400% of 2% meets the enhanced matching formula, do you think ignoring the "insert a percentage not less than 3%" parenthetical put the plan in off-prototype status?

Seems like a crazy parenthetical since the formula inserted meets safe harbor requirements or it is not a safe harbor contribution plan, but it is sitting there in the adoption agreement.

thank you in advance for any feedback.

[Jim Chad]

I see no reason for the Parenthetical "not less than 3%".....But that doesn't mean there is no reason. I would check with the document provider on this. I would not willingly go outside the guidelines for filling out the adoption agreement.

[K2retire]

I was always under the impression that the enhanced match formula had to match up to at least 4%, but not more than 6%.

[Tom Poje]

The only requirement for the enhanced match is that it be at least as good as the basic match (1.401(k)-3©(3)

the 4%/6% are limits placed on satisfying ACP test. anything above the limits is tested

[ETA Consulting LLC]

I was always under the impression that the enhanced match formula had to match up to at least 4%, but not more than 6%.

No, it must be at least 4%, but the deferrals that are matched cannot exceed 6%. The 6% is not a reflection of the contribution, but the deferrals that are matched.

This is a typical area of confusion.

Good Luck!

[Kevin C]

The only requirement for the enhanced match is that it be at least as good as the basic match (1.401(k)-3©(3)

Tom has it, although I would add the phrase "at all deferral levels". The SH restriction is here:

(

3)Enhanced matching formula.—

Under an enhanced matching formula, each eligible NHCE receives a matching contribution under a formula that, at any rate of elective contributions by the employee, provides an aggregate amount of qualified matching contributions at least equal to the aggregate amount of qualified matching contributions that would have been provided under the basic matching formula of paragraph ©(2) of this section. In addition, under an enhanced matching formula, the ratio of matching contributions on behalf of an employee under the plan for a plan year to the employee's elective contributions may not increase as the amount of an employee's elective contributions increases.

If your prototype or VS document requires that the enhanced match must be on at least the first 3%, you have another issue because one condition of reliance on the opinion letter is that you only select options allowed by the document.

Rev. Proc. 2005-16 Section 19 .02 Nonstandardized M&P Plans and Volume Submitter Plans - An employer adopting a nonstandardized M&P or volume submitter plan may rely on that plan's opinion or advisory letter as described below if the employer's plan is identical to an approved M&P or specimen plan with a currently valid favorable opinion or advisory letter, the employer has chosen only options permitted under the terms of the approved plan, and the employer has followed the terms of the plan. Also see section 19.03(3) below. These employers can forego filing Form 5307 and rely on the plan's favorable opinion or advisory letter with respect to the qualification requirements, except as provided in section (1) through (4) and section 19.03 below.

[masteff]

How is the parenthetic actually worded? I would take the position that you understood it to apply to the entire match, not just the deferral component.

[Kevin C]

And, what other choices are available? In our VS document, you would have to use the "tiered match" option instead of the "enhanced match" option to do a 400% match on the first 2% because of the wording in the adoption agreement.