10% Contribution % for QACA

[Flyboyjohn]

Anything legally (forget morally) wrong with this 401k plan design:

Automatic deferral contribution rate of 10% with enhanced QACA safe harbor match of 100% on first 3.5%.

Expectation is that 10% will be unacceptable to most NHCEs and they'll waive.

Colleague is arguing that the minimum deferral rate has to be "reasonable under the circumstances" but I can't find any such subjective requirement.

[Lou S.]

Legally you are not exceeding the letter of the law with the 10% max so you should be OK.

Morally, we'll forget that one.

[jpod]

I am not sure I understand the expectation (or, maybe, I don't know enough about how QACAs work). Why couldn't an employee elect to reduce the 10% to 3.5% and then get the 3.5% match?

[Flyboyjohn]

Under the QACA rules you can set the "minimum required contribution" at 10% and not permit election of a lower deferral %

[Tom Poje]

as I recall the questions was asked at an ASPPA Conference many moons ago, so many in fact, that...

well, as I recall, the issue was discussed from the podium. and the original question was at 6% not 10%.

the answer was basically as described above, but perhaps in more cautious terms.

I believe the IRS suggested, as noted in the original post, this may be 'unreasonable' possibly subject to a BRF test - while yes currently available to everyone, effectively it was not.

given the fact you are giving a free ride on ADP testing and if only HCES are able to take advantage of it, the IRS might have problems upon examination.

suppose NHCEs were smart enough (ha ha ha), I said suppose to write the IRS and ask

How come the HCEs can defer out the wazoo and get a match and we get nothing because we can't afford to defer but limited amounts

would such a plan ever get caught?

or maybe, perhaps put another way, if someone asked me to implement such a plan I would have them seek someone else to run the plan.