ACP Safe Harbor / $2,500 cap on match

[austin3515]

I am thinking applying a $2,500 cap on a "100% of the first 4%" match would blow the ACP Safe Harbor because it is possible that an HCE who terminates early in the year might have ALL of his/her 401k matched, whereas other NHCE's might be subject to the cap. Also, an HCE deferring say 1% might have 100% of his/her contributions matched whereas again the NHCE could have less. Note that the reg below merely talks about the ratio of match to deferrals with no exceptions. Everyone agree? Seems strange as this sort of provision obviously disproportionately (although not exclusively) affects HCE's.

From 1.401(m)-3

(4) Limitation on rate of match. A plan meets the requirements of this section only if the ratio of matching contributions on behalf of an HCE to that HCE's elective deferrals or employee contributions (or the sum of elective deferrals and employee contributions) for that plan year is no greater than the ratio of matching contributions to elective deferrals or employee contributions (or the sum of elective deferrals and employee contributions) that would apply with respect to any NHCE for whom the elective deferrals or employee contributions (or the sum of elective deferrals and employee contributions) are the same percentage of safe harbor compensation.

[Bird]

Putting a cap on "100% of the first..." is not 100%. No good.

[austin3515]

No good meaning I just have to run the ACP test, correct? Of course such a cap usually means the test will pass (as is the case in my situation). It's just a question of whether or not I need to run it,.

[Kevin C]

I think what Bird is referring to is that capping the match at $2,500 means it doesn't satisfy the safe harbor match requirement of 1.401(m)-3©. I agree you would also have a problem with the paragraph you cited dealing with limitations on the match, so you would need to run the ACP test.

It also makes me wonder what contribution is being used to satisfy the ADP safe harbor. Unless there is another safe harbor contribution being made, I think you lose the ADP SH as well when you cap the otherwise SH match.

[Tom Poje]

in addition to blowing "top heavy free"

[austin3515]

Thanks Tom, I'd like to think I would have thought of that if my plan was top-heavy but fortunately the TH %age is zero so far!

And the Plan is a 3% SHNEC.

Thanks guys!