QACA--Can we do 50% up to 7% match?

[TPAJake]

The client wants to avoid the pain of auto escalation, so that requires an initial auto-enrollment of at least 6%. They also want the match formula to be simpler than 100% of first 1%, followed by 50% of each add'l percent. Can we not just do a flat match of 50% up to 7% to get to the required QACA level of 3.5%?

[JJRetirement]

That design won't meet the minimum match requirements for a QACA. It isn't enough that participants who contribute 7% of compensation receive the 3.5%. You have to match (at least) 100% of the first 1% and then 50% of the next 5.

In the proposed design, a participant who contributes 1% will only get half of the match that is required for a QACA.

[TPAJake]

We discussed 100% up to 3.5%, but that would still require auto-escalation of the deferrals--Match would not need to escalate though right? I guess that's not the end of the world since the asset carrier can track the deferral escalation for us...

Or what about a 7% minimum deferral in the Plan Document? Then everyone is either in at 7% or out completely?

[Tom Poje]

Though it is a QACA, I think the ACP safe harbor is still limited to 6%, so you would lose that if you matched above 6%.

A few years ago at one of the ASPPA Conferences someone asked if you could start auto enroll at 6%, and IRS response was "Probably not, as not all NHCE might be able to participate at that rate"

for example, let's say you put in something like that and 80% of the NHCEs opted out. that probably fails the smell test.

[BG5150]

I thought the 4%/6% limits were for discretionary match when added to the SHM.

[Tom Poje]

BG5150

even an enhanced match has to be capped at 6% otherwise it fails ACP safe harbor

dang you make me look it up

code section 401(m)(11)((B)(I) match may not be made in excess of 6%

I think my former teacher would give you

twenty lashes with a wet noodle for that.

[BG5150]

I don't want to look the wrong thing up. is that 401(m)(11)((B)(ell) or 401(m)(11)((B)(eye) or 401(m)(11)((B)(one)?

[Tom Poje]

if you are a pirate with a patch, I would go with 'aye' instead of 'eye'

if you are a Detroit Lion fan I'm not sure you can go with 'won'

and if you work in pensions, especially with the 5500 deadlines approaching and how well clients get you data, then 'ell' is the obvious answer.

[ErisaGooroo]

What about an enhanced safe harbor formula that is 200% up to 2%? Does that satisfy the ADP safe harbor requirement? The overall match is 100% up to 4% if they defer 2%.

[TPAJake]

I like where this is going

[Tom Poje]

that match is fine under the rules.

Again, one only has to defer 2% to get the max match, and it is reasonable to assume all can do at least that much

[John Feldt ERPA CPC QPA]

auto enroll starts at 6% and IRS response was "Probably not, as not all NHCE might be able to participate at that rate"

Really? Are you kidding me?

[TPAJake]

I agree with John, that's pathetic. I saw an auto provision from a major (top 5) bundled provider's prototype the other day & it was a 6% initial enrollment, auto-escalating to 16%. The big boys are not following the logic that 6% is "too much", they're not stopping at the arbitrary 10% & my faith in humanity is still somewhat intact.