Strange match request

[Guest JPIngold]

I have a client who is simply wanting to encourage his employees to save. I have not had such a creature cross my path too often. The only two HCE's in his company make well over the comp limit, so their ADP will be in the 6.86% range. He wants to encourage people to defer 10%. Because I am afraid even a rich match won't make it an automatic ADP pass, I am suggesting he use the basic SH match to start with. If he adds a crazy non SH match formula like 0% up to 5%, 100% for 5% to 7% and 50% for 7% to 10%, does that blow up the ACP safe harbor for the basic match portion and I have to test the whole match or do I just need to test the non SH match?

I think I would have a good chance of passing just the non SH match if he can get some people to defer 10% because he and the other HCE will only get a limited portion of that extra because their deferrals cap at 6.86%. If I have to test all matching dollars together, though, it may not go as well.

[ETA Consulting LLC]

Under the safe harbor match provisions, you cannot match deferrals that exceed 6% of Compensation. You may match $4 for every dollar deferred up to 6% of compensation, but you may not match deferrals above the 6% of Compensation.

Good Luck!

[Mike Preston]

He can do a QACA.

[Guest JPIngold]

Under the safe harbor match provisions, you cannot match deferrals that exceed 6% of Compensation. You may match $4 for every dollar deferred up to 6% of compensation, but you may not match deferrals above the 6% of Compensation.

Good Luck!

I agree that for it to be safe harbor, I have to ignore deferrals above 6% and if it is a discretionary match (rather than a fixed match), the additional match is limited to 4% of pay. But I am wondering about the additional match, knowing it is not a safe harbor, and the resulting testing requirement.

So are you saying by adding the additional match, I blow the safe harbor for the first match and have to test both matches together under ACP, or are you saying I just have to test the additional match for ACP and the basic match can be ignored for testing???

[Tom Poje]

1.401(m)-2(a)(5)(iv)

you can test all match in the ACP or exclude matches that do not exceed 4% of comp. (assuming the match satisfies the ADP safe harbor as well)

for QACA the 4% is reduced to 3 1/2 %

[Guest JPIngold]

He can do a QACA.

Unfortunately, his people would be in his office the next day opting out!!! He's not even convinced a lucrative match will do it.

[Guest JPIngold]

1.401(m)-2(a)(5)(iv)

you can test all match in the ACP or exclude matches that do not exceed 4% of comp. (assuming the match satisfies the ADP safe harbor as well)

for QACA the 4% is reduced to 3 1/2 %

Just the answer I was looking for. You're the best Sir Tom!!!

[BG5150]

You can lead a horse to water...

If they have the SH match, then at least the people who want to save are rewarded. And the two HCEs will be okay deferring the max.

Has the financial adviser been out there to pitch the plan? Are the assets with a big carrier? Sometimes they can send out a crew to rally the troops.

[Jim Chad]

How about instead of raises in the future, he could start with a SHNEC and then add PS in future years?

This is more like my father's DB plan in the 60's and 70's.....forced savings.