Enhanced SH Match

[jkdoll2]

Client is doing a discretionary match of :  Since it relates back to service it can not be used as a safe harbor match

100% of deferrals up to 6% of comp up to 5 years of service - then 150% of deferrals up to 6% of comp if over 5 years of service

How the Formula Works (Example: $50,000 Salary)

• Years 1-5:
  • You contribute 6% of $50,000 = $3,000.
  • Employer matches 100% of your contribution up to 6% = $3,000 match.
  • Total contribution: $6,000 ($3,000 your money + $3,000 employer).
• After Year 5:
  • You contribute 6% of $50,000 = $3,000.
  • Employer matches 150% of your contribution up to 6% = $4,500 match.
  • Total contribution: $7,500 ($3,000 your money + $4,500 employer). 

Can they do a Enhanced SH match of 100% of deferrals up to 6% of comp

and then a discretionary match of 100% of deferrals up to 3% of comp if you have been then at least 5 years

In other words - 1-5 years 0% match ; 5 years or more 3% match

Would that need to be tested alone (ACP) without the safe harbor match?

Would ADP test pass automatically since there is a safe harbor match?

[justanotheradmin]

Before getting into the Safe Harbor question - 

Does the service component pass benefits, rights, and features testing? Is the service based match formula discriminatory in favor of HCE?

If the HCE are getting(or even more likely to get, even if not actually receiving it) the higher formula, and not the lower formula, does that pass non-discrimination testing? 

If a discretionary match is within the ACP safe harbor parameters - my understanding is that it has to utilize a formula that is non discriminatory. If it does that, AND is within the extra parameters, then it is possible to preserve the automatic pass on ACP testing that the safe harbor match portion provides. 

A service based formula (for match, or nonelective) in and of itself - is not automatically discriminatory. But for things like an employer nonelective would typically be subject to 401(a)(4) testing. So similar questions have to be asked about Match. 

I hope others will provide more specific insight. 

[Bri]

That was my thought, too - you can do it but you have lots of other things to pass, the ADP not one of them.

[CuseFan]

Doesn't the discretionary match formula, to be covered under ACP safe harbor, have to preclude any HCE from getting a higher rate of match than any NHCE contributing the same rate? If any HCE has >5 YOS and any NHCE <5 YOS that won't hold.

Or am I confusing this with something else?