8% Company Match- HCE Question

[Guest ghenson08]

We currently have $/$ up to 4% match per pay period with 3% profit sharing annually. We're thinking about going to a flat $/$ up to 8% match with no profit sharing. We also match on catch up contributions and that will continue.

The problem I'm having is for our under age 50 who make over the IRS comp limit (technically over $218,750). They would be limited to an effective deferral rate of 6.7% ($17,500/$260,000 for 2014) so they wouldn't be getting the full 8% match and they would be getting less than our current program of total DC ER contribution of 7%.

Has anyone had any experience with this or know a solution that would help these participants get the full 8%? We can't write a true up rule that says "if you make $218,750 or more, you will get a true up match" because we'll fail the BRF test.

[K2retire]

The deferral limit as a percentage of the compensation limit has been in the range of around 6% for years and that is not likely to change. A 133% match up to 6% would get your HCEs to an 8% employer contribution.

[Guest ghenson08]

133% would get us to 8% but our overall goal is to change NHCE's behavior and try to incentivise them to contribut 8%. 133% match would only yield a total of 14% (6% EE and 8% ER) where we want it to be 16% total contribution.

[jpod]

I don't think there is a solution of the type you are hoping to find. However, have you considered:

1. If they max out at the 402g limit, allow them to defer on a non-qualified plan basis and provide a non-qualified match so they get the full 8% in both plans. This assumes that the people in question all qualify as "top hat" group members and that the employer is willing to take on the extra baggage of a non-qualified plan.

2.

3.Alternatively, if they max out at $17K and it is less than 8%, give them the benefit of the doubt that they would go up to 8% if they could and just pay them the extra match in taxable cash.

[jpod]

I don't think there is a solution of the type you are hoping to find. However, have you considered:

1. If they max out at the 402g limit, allow them to defer on a non-qualified plan basis and provide a non-qualified match so they get the full 8% in both plans. This assumes that the people in question all qualify as "top hat" group members and that the employer is willing to take on the extra baggage of a non-qualified plan.

2.

3.Alternatively, if they max out at $17K and it is less than 8%, give them the benefit of the doubt that they would go up to 8% if they could and just pay them the extra match in taxable cash.

[jpod]

My #2 disappeared.

2. If you have made or can make the top 20% election and some of these people would drop out of the top 20%, you can give them a special profit sharing plan allocation to bring them up to 8% if they have maxed out at the 402g limit.

[Lou S.]

133% would get us to 8% but our overall goal is to change NHCE's behavior and try to incentivise them to contribut 8%. 133% match would only yield a total of 14% (6% EE and 8% ER) where we want it to be 16% total contribution.

Been there done that it rarely works. Likely you will just generate larger ACP refunds. Why not just make the 3% NE or 4% match a safe harbor and be done with it?

[masteff]

What about matching 2% of after-tax contributions?

[rcline46]

Only HCEs in the ACP test for voluntary contributions. Instant fail.