Safe harbor matching plan with discretionary contributions

[Belgarath]

I always find this subject confusing. Safe harbor basic matching formula - 100% of first 3%, 50% on the next 2%. Plan also allows discretionary match. If a discretionary match is made adding another 50% on deferrals of 4% and 5% - basically transforming the match to 100% of the first 5%, it seems to me that this satisfies the ACP safe harbor, still. Basic match, discretionary match is less than 4% (it is 1% max). What about nondiscrimination testing? No current availability issue, is effective availability a potential problem, (cause the discretionary match is only available if you defer more than 3%) or am I worrying about nothing?

[mphs77]

Wouldn't there be an issue with the structure of the discretionary match as it is an increasing

formula (0% for the first 3% of deferrals, then 50% for 3% thru 5%)?

[Belgarath]

Thank you. Brain cramp...

[mphs77]

more like missing a gear when shifting, isn't it?

[TPAJake]

That would be a problem if you were only contributing the discretionary portion, but in this case they were matching 100% of the first 3%, so the escalating rate of match issue wouldn't really apply...Right? As long as the document allows it, the safe harbor notice says it & there's a deferral election on file for everyone proving they knew about it, I think it's solid. But hey, I've been wrong before.

[Belgarath]

Let's change the scenario - SH plan with basic matching formula. So if you defer 5%, you get 4%.

In addition, there's a discretionary match of, say, 66% of the first 6%. This stays within the 6%/4% limit, and rounded, in essence means that a participant who defers 6% will receive an 8% total match. Plan still exempt from top heavy, if there are no other contributions? That seems to be allowable under 1.401(m)-3(d)(3)(i) and (ii).

[BG5150]

^ yep

[RatherBeGolfing]

Let's change the scenario - SH plan with basic matching formula. So if you defer 5%, you get 4%.

In addition, there's a discretionary match of, say, 66% of the first 6%. This stays within the 6%/4% limit, and rounded, in essence means that a participant who defers 6% will receive an 8% total match. Plan still exempt from top heavy, if there are no other contributions? That seems to be allowable under 1.401(m)-3(d)(3)(i) and (ii).

Yes, and you can add a fixed match to that (still not matching deferrals in excess of 6%), max out your HCEs, and still be exempt from top heavy

[austin3515]

Belgarath, we do that all the time when there is lousy employee participation. In fact sometimes we just show it as an optional contribution when we send them the SH Match calc.