Hybrid Safe Harbor design?

[MPLSLAW]

Client wants to amend plan to provide for the 3% non-elective safe harbor (no deferral requirement) and then match 50% of deferrals between 3 and 5% for an additional 1 % "safe harbor match". Is there a way to design the safe harbor so that both pieces qualify as safe harbor contributions? The regulations have an example with a discretionary match, but client wants to fix the match formula into the plan.

[Lou S.]

If I understand it the client wants match of 0% of 1st 3 % plus 50% of next 2%?

If so that won't satisfy the ACP safe harbor as you have an increasing rate of matching contribution as deferrals increase, namely the bump when a deferral rate > 3% of pay.

[MPLSLAW]

Thanks for the response Lou. No. actually the client wants to match 3% of pay on deferrals between 0% and 3% and 50% on deferrals between 3% and 5%.

[Lou S.]

In that case yes, if they match 100% of the first 3 and 50% of the next 2 that will qualify for ACP relief when there is a 3% SHNEC.

The rule as I recall is you can have any match qualify as a fixed match in the document so long as it follows a few simple rules -

1 - It can not match deferrals more than 6% of pay.

2 - It can not increase as the rate of deferral increases

There may be a couple others but that's the basics.

What they can't do is count the 3% SHNEC as a 3% match and only match 50% from 3%-5%.

[austin3515]

"Client wants to amend plan to provide for the 3% non-elective safe harbor (no deferral requirement) and then match 50% of deferrals between 3 and 5% for an additional 1 % "safe harbor match".

You've changed your story from your original post. Based on what you have said here (in which the first 3% is explicity NOT a match) you should refer to Lou S. first response. See also the last sentence of his last response.

[MPLSLAW]

The responses track with our initial conclusions. Could the plan instead provide for the 3%SHNEC (not a match) and also provide for a 25% match on deferral contributions up to 4% (maximum employer contribution of 4%) without having to test the match?

[Lou S.]

Yes you can do a SHNEC of 3% and a fixed match of 25% of the first 4% of pay.

[austin3515]

I have to say though, I think the design you suggested is such a good idea, where no one is harmed, that I think it actually ought to be added as a doable option eligible for ACP Safe Harbor Treatment. OF course it goes above and beyond the ADP Safe Harbor, but it seems silly not to make it eligible for the ACP Safe Harbor.

Neat idea...