410b test with sh match and disc match

Good Morning,

Hoping you all can help with a question....

I have a plan with safe harbor match and discretionary match.  1000 hour and last day requirement on the disc match.

When running the 410b test, FTW test both the sh match and the disc match contributions as one component in the 410b test.   Since they are actually two different money types do they need to be tested separately? 

appreciate your help!

No.

The mandatory disaggregation rules under the 410(b) regs say that you disaggregate a plan into 3 plans for coverage testing—one for deferrals, one for match, and one for non-elective (profit sharing). This is why safe harbor non-elective is tested together with profit sharing, for example.

The fact that different match formulas apply to different employees will be tested in the ACP test.

The question was related to a "safe harbor match" and a discretionary match.   The reason your software is testing both, is because the discretionary match does not meet the  ACP safe harbor, if the discretionary match requires 1,000 hours and last day.   The safe harbor match gives you a free pass on the ADP test.   If your document indicates that the plan is intended to meet the ADP and ACP safe harbors, you need to eliminate the last day and 1,000 hours requirement for the discretionary match.  

You  have to completely separate your coverage testing for the two types of match (since they have different allocation entitlement requirements).  You  likely need to re-set your specs to ONLY test the discretionary match:  if you do not have a formula for the discretionary match that limits the discretionary match to 4% of pay, or matches deferrals >6% of pay, or you have conditions to receive it, since those  factors do not meet the ACP safe harbor.   

19 hours ago, Eve Sav said:

You  have to completely separate your coverage testing for the two types of match (since they have different allocation entitlement requirements)

No you don't.  

See CBZ's post right above yours.

Thank you for the information

Because they have an hours requirement and last day rules, does that take it out of being safe harbor?

Do i have to run the ADP test or is that still satisfied by the safe harbor match? 

Thanks!

The ADP test will be deemed to pass.

Because of the service requirements of the discretionary match, you will have to run the ACP test.

I sorta remember this is where the sponsor has the option to leave out the ADP safe harbor portion of the match from the ACP test, although the full details are fuzzy.

I agree that the ADP safe harbor match gives a free pass with regard to ADP testing, but I believe that (1) the free pass does not extend to the ACP requirements, and (2) that there is more to the ACP safe harbor than just complying with the percentage limits and avoiding any allocation conditions. My reading of the regulations is that you cannot have an ACP safe harbor without putting that provision on the AA (for a preapproved plan). That is why it is on the adoption agreement. There needs to be plan language adopted that sets forth the promise of maintaining the ACP safe harbor as the plan's specified method for complying with the ACP requirements, just as there must be plan language adopted for the ADP safe harbor that sets forth the promise of maintaining the ADP safe harbor as the plan's specified method for complying with the ADP requirements, which is why an amendment is required to get out of either an ADP SH or an ACP SH midyear. I say that because...

Regulation 1.401(m)-3(f)(1) states in pertinent part: (emphasis added)  “(1) General rule. Except as provided in this paragraph (f) or in paragraph (g) of this section, a plan will fail to satisfy the requirements of section 401(m)(11), section 401(m)(12), and this section unless plan provisions that satisfy the rules of this section are adopted before the first day of that plan year and remain in effect for an entire 12-month plan year.”

 This rule’s language is identical to the ADP safe harbor regulation’s language. I believe it means you are committing, via a timely AA election, to (1) maintaining both the ACP safe harbor and an ADP safe harbor (of any type) for the entire plan year (since you need an APDH to have an ACPSH), (2) limiting any discretionary match to 4%, (3) not recognizing deferrals in excess of 6% for any match, (4) not increasing the rate of match as deferrals increase, (5) not giving a better match to any HCE than what any NHCE would get at the same level of deferral, which I believe to be the basis for plans stating that no allocation conditions can be attached to the additional match.  In other words, you can completely avoid allocation conditions on the additional match and still violate the last item I’ve listed in some other way, such as by having an HCE get more than an NHCE inadvertently because you have multiple matching contribution formulas. And I believe you can't overlook item #1) and say you have an ACP SH by observing items #2 through #5.

In addition, not that anyone in this tread is claiming otherwise, I believe Regulation 1.401(m)-2 states that ADP safe harbor contributions are generally subject to the ACP test. However, most plans don’t need to do that ACP test for an ADP SH match because there is a special ACP testing rule that exempts the first 4% of compensation provided under the ADP safe harbor match (3.5% in the case of a QACA) from needing to conduct the ACP test. For example, if the plan has an ADP non-QACA safe harbor match and there is no ACP safe harbor, and if the ADP safe harbor match is 100% of the first 4% of compensation, then that ADP safe harbor match would not require an ACP test. In contrast, an ADP safe harbor formula of 100% of the first 5% would require an ACP test (in the absence of an ACP safe harbor). When an ACP test is required, I believe that administrator can choose to test either the full amount of the ADP safe harbor match or just the portion that exceeds the stated threshold (that rule is probably found elsewhere in the same regulation).

The second sentence of the ACP test provisions of §1.401(m)-2(c)(2)(iv) states: (emphasis added) “In addition, a plan that satisfies the ADP safe harbor requirements of § 1.401(k)-3 for a plan year using qualified matching contributions but does not satisfy the ACP safe harbor requirements of section 401(m)(11) or 401(m)(12) for such plan year is permitted to apply this section by excluding matching contributions with respect to all eligible employees that do not exceed 4 percent (3 1/2 percent in the case of a plan that satisfies the ADP safe harbor under section 401(k)(13)) of each employee's compensation.”

So unless the employer has committed to using an ACP safe harbor on the adoption agreement and that provision was both adopted and in effect at the start of the plan year, and all the other conditions are observed, I believe that (1) not only is the additional match always subject to the ACP test (no matter how many of the other conditions you satisfy), but also (2) maybe the ADP safe harbor contribution itself also needs to be ACP tested (depending on how generous it is).

Thanks All!