Enchanced Safe Harbor Match

[52626]

The employer wants to make a safe harbor match of 100% of the first 3% and 100% of the next 2% - this would be an enhanced match of 100% of the first 5%.

Since the match formula is not less than the contribution determined under the basis match this is a good enhanced match.

Now the employer wants to cap the match at $10,000.

The accountant says this is ok, since the "level" in the enhanced match is better than the basic match. He claims even though the particpant receives less of a contribution under the enhanced match than the basic match, the fact the level is better, will allow his client to implement this match.

When I read the ERISA Outline book it states, ... A matching contribution will satisfy the ADP safe harbor contribution requirement if it is no less than the contribution determined under the "basic" formula.

I am looking for some quidance regarding the "cap". My thought is you cannot cap the safe habor. Need some help in understanding the rule.

Thanks

[BG5150]

To me, $10k cap is not as good as the basic match. Someone making $255,000, deferring 5% or more would get a match of $10,200 this year.

[Jim Chad]

I agree. This is not a legal SHMAC.

[Belgarath]

What about capping only the highly compensated employees? The SH match only requires the NHC to receive the minimum amounts already discussed. Realistically, no NHC could ever get to the $10,000 cap anyway, so this would only cap HC's, which appears to be what is intended? Am I missing something? (quite likely...)

I'm assuming there is no top paid limitation group issue in effect here.

[ETA Consulting LLC]

I'm with Belgarath on this one. There is enough flexibility to keep the match while changing some other items. You may exclude HCEs, limit the compensation used for HCEs, or use an entirely different definition of Compensation (that satisfies 414(s)) in order to get to the limit. What you cannot do is arbitrarily state that no one will receive a match greater than $10,000. You "may", however, get to that same effect by changing some other variables.

Personally, I'd draft the plan to ensure these items impact HCEs only (for instance, limit HCE compensation to $200,000 instead of $250,000).

Good Luck!