add match with prior year testing - issues?

I've got a plan that is currently using the 3% safe harbor NEC, and they want to add a small match as well.  This is a plan that historically gives bad data late, so I'm trying to think of ways to deal with the 3/15 ACP deadline.  I was thinking that if I added it with prior year testing, then all I really need to do is get HCE data by Feb or so and then I can do the ACP test by 3/15 and deal with the rest of the census data as we get it.

I don't do a lot of prior year testing, so I'm not sure if that would work.  If it's added for 2025, what NHCE ACP rate do I use for the 2025 testing?

Thanks.

Does the plan currently permit a discretionary matching contribution, but the employer simply chooses not to make one? If so then the prior year's NHCE ACP is 0% since there were no matching contributions.

If the plan does not currently permit matching contributions, then there is a special rule that deems the prior year NHCE ACP to be 3% in the first year that the plan permits matching contributions. 1.401(m)-2(c)(2)

However, you said the plan is currently using the 3% safe harbor non-elective contribution, so the plan could be exempt from the ACP test, as long as the match satisfies the ACP safe harbor. Depending what you mean by a "small" match it very well might.

Finally, you could just tell the client that if they want to add a match, there is required testing. If the test fails and can't be corrected until after the deadline, because they sent you the data late, then they will be subject to a penalty. It's their decision whether they want to figure out how to get you the data on time, or risk the penalty.

I thought by rule that a safe harbor 401k is required/deemed to use current year testing. Or is it possible to be deemed current year for ADP under SH but elect prior year w/o SH for match? Do pre-approved documents even allow for that? Looking in our document, you can elect current or prior year testing independently for ADP and ACP but then each has their respective note below:

NOTE: If the Plan is a 401(k) safe harbor plan, the current year must be used for those Plan Years during which the
Plan is subject to the 401(k) safe harbor requirements.

NOTE: If the Plan is a 401(k) safe harbor plan and it is intended to satisfy the ACP safe harbor, the current year must
be used for those Plan Years during which the Plan is subject to the 401(k) safe harbor requirements.

1 hour ago, CuseFan said:

NOTE: If the Plan is a 401(k) safe harbor plan and it is intended to satisfy the ACP safe harbor, the current year must
be used for those Plan Years during which the Plan is subject to the 401(k) safe harbor requirements.

Absolutely correct and this slipped my mind when replying earlier.

So either the safe harbor non-elective contribution is being used to satisfy the ACP safe harbor, which means it has to remain current year testing, but then there's no testing needed as long as the match formula meets the safe harbor requirements.

Or, the safe harbor non-elective contribution is being used to satisfy only the ADP safe harbor, in which case ACP testing is required but could use either prior year or current year.

The match is only going to be ~2%, so I assumed that it was not part of the safe harbor process.  So the ADP would be current year (and safe harbor), but the match would be prior year.

If the match formula is 100% of deferrals up to 2% of compensation, then that is a safe harbor formula. So as long as the document says that the 3% nonelective contribution is being used to satisfy both the ADP and ACP safe harbors, then no testing should be needed.