Code 2K required for Safe Harbor Match?

[BG5150]

Do we add 2K as a plan characteristic code if a plan only has a Safe Harbor Match?  Instructions say not to use it if the arrangement is solely 401(k) + QNEC or QMAC.  Is a SHM considered a QMAC?

[Mike Preston]

I don't think so, but interested in others' take.

[BG5150]

You don't think I need to add 2K or that the SHM is not a QNEC/QMAC?

[Mike Preston]

I don't think a SHM is considered a QMAC for that purpose.  I have even less strong feelings about 2K.  There are two ways to interpret the instructions, both are reasonable and with one interpretation (the more logical one) I would not fill in 2K for a SHM plan and with the other one (the more literal one) I would.  So, it is take your pick as to which way to go.

Oh yeah....which is which?  More logical one: the instructions are intended to instruct inclusion of code 2K when the plan is subject to a 401(m) test.  More literal one: Instructions don't specifically say that 2K is not applicable in a SHM plan, so you are supposed to include it.

[BG5150]

I would say SHM IS subject to 401(m), as it is stated in 401(m)11 that the SHM (pointing back to 401(k)12) is an alternative way to meet the test.

[RatherBeGolfing]

FWIW, I use 2K for 401(k)+SHM only plans.  The instructions are unclear at best and generate inconsistent answers, which was part of the reasoning for dropping the codes and adding compliance questions to the proposed 5500. I have never heard of the IRS making a big deal  of the codes if they are wrong but I would rather use one than omit one.

[Tom Poje]

how about "maybe"? (as in 'maybe' more useless Tom babbling!)

The original safe harbor rules, Notice 98-52 VIII D has:

D. Qualified Matching Contributions and Qualified Nonelective Contributions

To the extent they are needed to satisfy the safe harbor contribution requirement of section V.B, safe harbor matching and nonelective contributions may not be used as qualified matching contributions and qualified nonelective contributions, respectively, under any plan for any plan year. For example, if a plan satisfies the safe harbor contribution requirement using a safe harbor nonelective contribution by allocating a 7-percent safe harbor nonelective contribution to all eligible employees, contributions in an amount equal to the first 3 percent of each employee's compensation may not be used as a qualified nonelective contribution under the ACP test. However, safe harbor nonelective contributions in an amount equal to the remaining 4 percent of each employee's compensation may be used to satisfy the ACP test (subject to the requirements of section 1.401(m)-1(b)(5)).

 

unfortunately the example using the nonelective rather than the match. I can understand the concept of the additional nonelective being treated as a QNEC, but I'm not sure in regards to the match. Maybe if you make something above the match  (e.g. match more than 6%) AND you use the rule to include ' up to 4% of the safe harbor match or whatever that rule is' then you are using a QMAC

[Tom Poje]

the proposed regs for the use of forfeitures as safe harbors indicates

 

In lieu of applying the ADP test, an employer may choose to design its

plan to satisfy an ADP safe harbor, including the ADP safe harbor provisions of

section 401(k)(12), described in §1.401(k)-3. Under §1.401(k)-3, a plan satisfies

the ADP safe harbor provisions of section 401(k)(12) if, among other things, it

satisfies certain contribution requirements. With respect to the safe harbor under

section 401(k)(12), an employer may choose to satisfy the contribution

requirement by providing a certain level of QMACs or QNECs to eligible

nonhighly compensated employees under the plan.

......

so that looks like they are now saying safe harbors are indeed QNECs and QMACs

[GMK]

Not that it matters, and I could be wrong, but that's not how I read it. I see it as saying that QMACs and QNECs are among the ways to satisfy the contribution requirement, not that safe harbor contributions are QNECs or QMACs ... but I could easily be corrected.

[ETA Consulting LLC]

I agree that it is certainly flexible, depending on how you interpret it.  My interpretation was this:  Many plans include hard-coded language in their BPDs that say regardless of your elections on the Adoption Agreement, you may still make a QNEC or a QMAC.  So, I was thinking that if the plan document is actually mapped using ANY match, then 2K would be selected.  Just another one of many potential interpretations.

Good Luck!

[CTipper]

Based on our interpretation of the 2016 Form 5500 instructions, Safe Harbor Match is not a QMAC