Fixed Match Mistakenly Retained When SH Match Adopted

Plan sponsor's calendar year, non-safe harbor 401(k) plan provided a fixed match of 50% of deferrals up to 8% of compensation in 2023.  Plan was amended effective 1/1/2024 to add a basic safe harbor match intended to satisfy ADP and ACP safe harbors.  Due to an apparent oversight, the fixed match was not removed when the safe harbor match was added.  Sponsor indicates its intent was to replace the fixed match with the safe harbor match, and to discontinue the non-safe harbor fixed match after 2023.

Can the non-safe harbor fixed match be removed mid-year without adversely affecting the plan’s safe harbor status?  If removed, would the fixed match nevertheless have to be funded at least through the date the amendment removing it is adopted, especially as there are no allocation conditions on the fixed match and the contribution presumably would already have accrued?

Even if removing the fixed match would not violate the rules governing mid-year changes to a safe harbor plan, would removing it prospectively for the balance of 2024 still leave the plan subject to ACP testing for the 2024 plan year (e.g., because the fixed formula is outside the ACP matching safe harbor)?

If the plan provides for Safe Harbor Match effective January 1, 2024, then the plan sponsor is obligated to makes Safe Harbor Match contributions with the first payroll in 2024.  Just because they mislabeled the Match doesn't mean it isn't Safe Harbor. 

Work with the institution to recharacterize those contributions as Safe Harbor Match, because it sounds like this is what the employer intended.  Easy.  Applicable earnings should also be transferred to the Safe Harbor Match source.

There is no reason to remove the oops Match from the plan.  Just put it where it belongs.

I think the problem lies with now having provisions for both a basic safe harbor match and a fixed, non-discretionary, non-safe harbor match, as a result of adding the safe harbor match effective 1/1/2024 and failing to remove the existing non-safe harbor fixed match at that time.  With both these provisions in place, the sponsor is arguably on the hook for contributing up to 8% of compensation (4% under the basic safe harbor match and another 4% (50% of 8%) under the fixed match), when the intent was to limit their exposure to 4% of compensation.

That's the impetus for wanting to remove the non-safe harbor match provisions.     

Did the amendment replace the current match with the safe harbor formula or did the amendment add a safe harbor match, on top of the existing formula?

If it's the former as Towanda implies, then I would agree with their fix.

If it's the later, I don't think you could removed the additional fixed match for 2024 without jeopardizing SH status since it would be a mid year reduction. If the communications to employees and company minutes all reflected the intention to switch from the current match to the new enhanced SH match, I think it's something that you could correct though VCP.

Oh and I think you can clearly remove either match for 2024 prospectively, it's just that you will lose SH reliance for 2024 absent some IRS blessing which is where I think a VCP submission would work. Though the cost of VCP might be weighted against the cost of providing both matches for 2024 and amending out the fixed match for 2025. And losing SH status may or may not be a big deal for them in 2024 though since they just added SH, I'm guessing testing has been a issue in the past.

Maybe others have different thoughts.