Minimum deferral to receive match.

[Guest Thornton]

Company A wants to have a maximum match of 1% of pay. No problem. However, to receive the match, a participant must defer 4% of pay or more. For example, a participant deferring 4% or more of pay receives a 1% of pay match. A participant deferring less tha 4% of pay receives no match.

Can Company A do this? Thanks!

[ETA Consulting LLC]

Yes, because it is definitely determinable. How you test it (and the additional testing required) is the real question. We know that 410(b) would pass at 100% since everyone is "eligible to receive" the match should they defer at or above 4%. However, for those who defer, but at a rate of less than 4%, there would likely be a Benefits, Rights, and Features test required for those deferral rates less than 4%. Hypothetically, if HCEs were the only ones deferring at or above 4%, then this test would fail; because when you test at a 3% rate of deferrals, these HCEs would be the only ones deferring and not receiving a match.

I "think" that's how it would work.

Good Luck!

[K2retire]

We have a company that does that. So far they have still passed the ACP test, so it has worked fine.

[cpc0506]

To K2retire, are you performing the additional test as indicated by ERISAtoolkit?

[K2retire]

Ours is actually more complex than the OP described. We have various adopting employers who give differing rates of match, but all require a minimum deferral to receive anything. BRF works because we have enough HCEs in every level of match. ACP is always the bigger issue for us.

[Tom Poje]

what is being referred to under BRF (1.401(a)(4)-4)

is 'current' availability and 'effective' availability.

Currently - can everyone defer enough to get the match? Well, yes, of course, there is nothing in the plan itself that says "group B can only defer <4%"

Effective - probably best summed up as "are people actually able to afford to defer 4%?" e.g. what if all the NHCEs are making minimum wage?

generally there is no mathematical test, it is facts and circumstances situation.

a rate of match based on svc can be proved mathematically because it is not dependent on how much one defers, but rather simply service and you can split the HCEs and NHCEs based on that - that would fall under 'current' availability.

a rate of match based on how much one is deferring (especially if the rate is higher as deferrals increase) gets a lot tougher to prove - just because HCEs don't take advantage it doesn't mean a plan passes.

That is why, for instance, the safe harbor 401(k) plan rules have the rule the rate of match can't increase as deferrals increase, you can't receive a discretionary match greater than 4%, etc....

someone once asked at an ASPPA conference could you start an automatically enrollment at 6% and the response was such a plan would probably fail effective availability.