Are ACP Safe Harbor Contributions subject to withdrawal & allocati

[Guest patom]

I understand that the ADP safe harbor subjects a plan to 100% vesting, withdrawal restrictions , and allocation restrictions (no last day etc.)on safe harbor contributions . It appears that the ACP safe harbor is not necessarily subject to any of these. Can someone clarify how the ACP safe harbor is affected by these items?

[Guest]

see IV H safe harbor matching contributions/nonelective contributions

(1) nonforfeitable

(2) same withdrawal restrictions as 401(k)(2)(B)

see also VI ACP Safe harbor

B, A plan satisfies this if it satisfies VB1 which is the safe harbor foe ADP.

notice 98-52

you might be thinking of the additional match contribution that can be made and can be subject to vesting.

[Guest Ralph]

Tom-what about the following situation?

401(k) plan matches $.50 on the dollar up to 4% of compensation. Match is subject to a vesting schedule & has a last day rule.

The 401(k) plan opts to make a 3% safe harbor non-elective contribution to MP plan. (which satisfies ADP safe harbor)

Client uses the current matching formula to satisfy the ACP safe harbor. IT's my understanding that the match for pursposes of the ACP safe harbor does not need to be 100% vested. ALso, in looking at the notices, I'm not positive that with respect to the ACP safe harbor you would need to impose wd & allocation restrictions.

[Guest]

In the scenario you listed, you are correct. But only because:

1. plan satisfies ADP safe harbor (with the 3% nonelective)

and

2. the match is falls within the limits prescribed.

The ADP safe harbor is the only one that is subject to the withdrawal restrictions

I couldn't tell you for sure where that is buried in the regs, but...

[Guest Ralph]

Tom, thanks for the response. Do you think that it's also true that you could keep the allocation restriction (last day rule) on the match in this scenario?

[Richard Anderson]

Since this discussion concerns a discretionary match in safe harbor 401(k) plans, can someone confirm (or disconfirm) my understanding of the following.

In a safe harbor 401(k) plan that otherwise satisfies both the ADP and ACP safe harbor,a discretionary match can not be greater than 4% of comp. This is true whether the plan satisfies the safe harbor with a 3% non-elective or the matching safe harbor (100% on 1st 3% deferred + 50% on the next 2%). If the discretionary match is over 4% of comp., then the ACP safe harbor is not satisfied, even if the safe harbor contribution is made. But, the over 4% discretionary match will not affect the ADP safe harbor status. Therefore, if a discretionary match is over 4%, the ACP test will always have to be performed. That ACP test will include both the discretionary match and the safe harbor match (if a safe harbor match is used to satisfy the ADP safe harbor).

[Guest]

without looking it up, dang you guys, you are going to make me learn all the ins and outs of safe harbors whether I want to or not- I thought that only the portion of the match that failed to satisfy safe harbor would be tested. in other words, only the amount above 4% match would be tested.

of course, no one in his/her right mind would design such a plan.

here is what you have:

6% deferral, 3% nonelective, 4% discretionary match...I am already up to 13%, and since 6% was deferred, I could already have already shot my 15% deductibility. And then you want to give additional match on top of this!!!It might be possible to achieve this nonsense by allocating the safe harbor in a money purchase plan, but lets get real! and don't say not everyone is going to defer. you are supposed to avoid the problems before they might occur. (On the other hand, speculation is neat...)

I think, in response to Ralph's question, yes, the discretionary match can have a last day provision. My understanding is as follows: I have a safe harbor plan which is satisfied by either a non elective 3% or a 4% match. end discussion. I am also allowed to make an additional discretionary match (subject to whatever eligibility conditions I want[within reason of course]) and that will not effect the safe harbor status of the plan. the discretionary match is not a safe harbor contribution- it is simply an extra contribution that will not cause a plan to fail safe harbor. that would be my understanding but I can't say I am 100% sure on that.

[M R Bernardin]

If the "extra" match has a last day rule attached, it is possible that it would fail the requirement that no HCE receive a greater match than any NHCE?? So it would be subject to ACP testing?

[Guest Ralph]

That's an intersting point. In thinking about it I don't think you could impose a last day requirement without subjecting it to testing.

Having said that, are we on the same page that the above situation

(401(k) plan makes 3% non-elective safe harbor contribution to MP plan. 401(k) also makes discretionary 4% matching contribution)

meets both the ADP & ACP safe harbors? I.e.,even though the match is subject to a vesting schedule & allows withdrawals, it still meets the ACP safe harbor?