Triple Stack Match Conditions

I've used a triple stack match and have had sponsors happy to be able to tie some vesting to the stated and disc. amounts.

I've got a sponsor who wants to encourage lower earning participants. Is it possible to run it to put dollar limit caps on the stated and discretionary components, and still keep the plan SH?

My proposal:

SH Enhanced 4% Match

Stated Match 100% on 6% (with a $3000 cap)

Disc Match 2/3 on 6% (with $2,000 cap)

Are the caps allowed on dollars separate from the SH enhanced portion?

Triple-stacked match and encouraging participants to defer. Well, that’s something!

The ADP test won’t apply due to the safe harbor match.  But, if a cap is on the other matches, as indicated, then I think you have the potential for different ultimate match rates based on deferrals. A low paid spouse of the owner can get a higher percent of pay match than an employee making $345,000 but is a NHCE due to last year’s wages.
 

So, regardless of the demographics, I think the caps on the two extra matches will suffer from a malady known as ACP testing. I could be wrong about that, of course, since I did not quote the applicable regulation and its requirements. 

22 minutes ago, John Feldt ERPA CPC QPA said:

So, regardless of the demographics, I think the caps on the two extra matches will suffer from a malady known as ACP testing. I could be wrong about that, of course, since I did not quote the applicable regulation and its requirements. 

I think it'll be okay subjecting it to ACP testing. That's where I am going with the caps. They have a lot of higher earners, and keeping them at a lower employer contribution should keep the HCE ACP pretty low. 

Really just wondering If I can put some additional controls, like a cap on those additional stated and Disc. contributions.

The triple-stacked match is approach is designed to maximize the match and also keep the SH for the ADP.  The caps are designed to limit the amount of the match which is a method to controlling cost.  The stated goal is to make some of the match subject to vesting while encouraging greater participation by lower earning employees.  At a high level, it seems that the proposed match structure is using approaches that are not designed to achieve the stated goals.  In the vernacular, it's like pounding a wooden square peg into a round hole.  That being said, if the goal is to fill a round hole with wood, then go for it.

You may want to consider other approaches to achieving the stated goals.  For example, what is the impact of excluding HCEs from the SHM?  What is the outcome of using average benefits testing and a new comparability formula?  What is the impact of using or not using top-paid group rules?  How many of the HCEs and NHCEs are or are not eligible to make catch-up contributions?  Are catch-up contributions eligible for a match?

Modeling alternatives using actual census data would provide a clearer picture of the effectiveness of each strategy to achieve the stated goals.

22 hours ago, Paul I said:

 

You may want to consider other approaches to achieving the stated goals.  For example, what is the impact of excluding HCEs from the SHM?  What is the outcome of using average benefits testing and a new comparability formula?  What is the impact of using or not using top-paid group rules?  How many of the HCEs and NHCEs are or are not eligible to make catch-up contributions?  Are catch-up contributions eligible for a match?

 

All good points Paul. I didn't think about limiting HCE's but that would work well too. I guess the goal is odd, it's not caring about the HCE's and trying to lock in the NHCE's with a type of handcuff vesting strategy. 

Thinking out loud now,

1.	QACA Enhanced match 4% on 4%
2.	Stated Match – 4% on 4%
3.	Discretionary  Match – 4% on 4%

2 year Vesting on QACA, 6 year on Stated and Disc.

Can exclude HCE’s so it just benefits those who make less. Can partially include them too.

Employee contributes 4%, receives 12%
Vested for 4% after two years, vested fully with other 8% after 6 years

EX: Employee makes $50,000, Saves $2,000. 
Receives $6,000, subject to 2- and 6-year vesting.
2nd work anniversary - $2800
3d $3600
4th $4,400
5th $5,200
6th $6000

Is the first level being QACA, with a 2 year vesting even possible in this scenario? Can't see why not