Triple Stacked Match

[401(k)athryn]

We have a plan sponsor that implemented a 401(k) Plan in 2016. This is a safe harbor match plan with an additional fixed match and a discretionary match, i.e. uses the triple-stacked match plan design. The fixed match formula is 86.79% on deferrals up to 6% of pay. This was written into the plan, as it is the formula that maximizes the owners for 2016, when we are using a discretionary match of 66.6667% on 6% of deferrals (equals the 4% ACP safe harbor match).

I realize that we should have considered drafting this differently because now we will be in a situation where the owners are not maximizing for 2017 under this formula (due to COLA increases).

I am curious to know what other administrators are doing:

1) Amending the plan document in advance of each year to increase the fixed formula based upon the COLA increases

OR

2) Drafting the original plan documents in such a way that amendments each year will not be necessary and owners will still maximize contributions. This could be something like including a 100% fixed match on deferrals up to 6% and then determining the discretionary match (ACP safe harbor) to maximize. The problem here is that the plan sponsor would be committing to a higher fixed match than would be necessary.

[John Feldt ERPA CPC QPA]

If the fixed match is set to about 90 cents for each dollar deferred, you'll be slightly overstating the minimum fixed match, so the discretionary would be slightly less than 4%. Before you do that, go back a few years and check the results on how that would have worked.

You could also find Tom Poje's limit projection spreadsheet and see how it might look into the future. Well, at least until tax reform passes and the rules and limits all get messed up!

[401(k)athryn]

Thanks! Your suggestion to do 90 cents on the dollar is similar to my 100% of deferrals option, but would give a little less leeway as time goes by and compensation and annual additions limits increase. Is there anyone out there who chooses, instead, to amend the fixed match formula every year?

Thanks!

[Peter Gulia]

Beyond the task of reminding the employer to sign something once a year, is there any other reason why annual plan amendments could be a bad idea?

[RatherBeGolfing]

Thanks! Your suggestion to do 90 cents on the dollar is similar to my 100% of deferrals option, but would give a little less leeway as time goes by and compensation and annual additions limits increase. Is there anyone out there who chooses, instead, to amend the fixed match formula every year?

Thanks!

Yes. For my stacked match plans I calculate the exact percentage for the fixed match and simply amend year by year as needed.

[401(k)athryn]

Thanks everyone!

[Peter Gulia]

401(k)athryn has solutions.

For my curiosity and perhaps your mental challenge, does anyone think it's possible to express the contribution allocations in a formula that would be constant year-to-year?

[RatherBeGolfing]

401(k)athryn has solutions.

For my curiosity and perhaps your mental challenge, does anyone think it's possible to express the contribution allocations in a formula that would be constant year-to-year?

I have seen some really creative document provisions so I'm sure it is possible. You would probably need an IDP to do it though, so unless you have other provisions that require an IDP, or a desire to have an IDP, is it worth it when all you need is a simple amendment if limits change?

[Doghouse]

I have done the formula approach, but fair warning, the formula is not pretty. It has to take into account changes in 401(a)(17) limit, 415© limit, and 402(g) limit.

[John Feldt ERPA CPC QPA]

And keep in mind that the SPD and notices would need to be written in a manner that the participant can understand, so writing this in the plan document in a complex manner to get to the exact fixed match would require you to override that language within the notices and the SPD.

[TPAJake]

Thanks! Your suggestion to do 90 cents on the dollar is similar to my 100% of deferrals option, but would give a little less leeway as time goes by and compensation and annual additions limits increase. Is there anyone out there who chooses, instead, to amend the fixed match formula every year?

Thanks!

Yes. For my stacked match plans I calculate the exact percentage for the fixed match and simply amend year by year as needed.

Amending each year is just one of the many challenges/costs associated with maxing-out owners under a match arrangement. You avoid the costs of a profit sharing approach, but you certainly pay for it with complexity. Risky too. You should see what happens when the new guy down in shipping & receiving actually reads the safe harbor notice, raises his deferrals & convinces the other NHCE's in the break room to follow suit on Dec 15--That gets expensive real quick.