ADP Safe Harbor But Not ACP - Will this work?

[austin3515]

Plan currently has a dollar for dollar match on first 10%.

I think I can have a dollar for dollar match on the first 4% as safe harbor, and then dollar for dollar on the next 6% as a discretionary match.  I would still get to keep my ADP Safe Harbor, but obviously no ACP Safe Harbor.

My understanding is that this does not create any problems at all, right?  i just have to run my ACP Test.

[Lou S.]

If your safe harbor formula is 100% of the first 10% I agree you are fine for ADP but have ACP testing. I think there are  a couple of options with the ACP testing like testing it all or just testing the piece that's in excess of 6%.

If your formula is 100% of the first 4% safe harbor plus a discretionary match of 0% of the first 4%, 100 of deferrals from 4-10% I think you have a problem with the increasing match nature of the discretionary piece.

 

[austin3515]

I thought that was just a poison pill for the ACP safe Harbor?

And for BRF, I would think I was ok because the lower 4% is more generous then the next 6% (in terms of vesting).

[MWeddell]

18 hours ago, austin3515 said:

My understanding is that this does not create any problems at all, right?  i just have to run my ACP Test.

I agree.  You have a 401(k), but not a 401(m), safe harbor plan.

[MWeddell]

 

17 hours ago, Lou S. said:

If your formula is 100% of the first 4% safe harbor plus a discretionary match of 0% of the first 4%, 100 of deferrals from 4-10% I think you have a problem with the increasing match nature of the discretionary piece.

 

 

17 hours ago, austin3515 said:

I thought that was just a poison pill for the ACP safe Harbor?

The provision is in Treas. Reg. Section 1.401(m)-3(d)(2), so it applies only to the 401(m) safe harbor.  However, that provision applies to all matching contributions, not just the non-safe harbor match, so the prohibition against increasing match does not apply to this plan design.

[austin3515]

Sorry, so that means you think this would work then, correct?

[MWeddell]

I think it works, yes.  Make sure the client understands that an ACP test is still needed.