401(k) Plan Mega Roth Backdoor After Tax Contributions

Hi, I've worked on 401k plans for a while now, but encountered mega roth backdoor quite recently. I do understand that it has great tax saving for an individual but after digging deeper I read that ACP must be passed for the after tax voluntary contributions even if the plan is safe harbor and passed ADP and ACP for matching. Am I understanding this correctly? Also is there any way to bypass the testing for mega roth backdoor after tax contributions?

Thanks!

Exactly, this is either an owner-only play or may work in a very large plan that otherwise easily passes ACP testing, but is essentially a nonstarter in small plans that cover NHCEs.

Thank you!

I have had it where it was an NHCE who wanted to do it.  It was a married couple, and the NHCE was married to someone who made a gazillion dollars so they were looking to contribute the full 415 limit.  And the plan sponsor was willing to accommodate (small employer).

We work primarily with larger plans that are unlikely to be designed as safe harbor--but that in general, don't need safe harbor protection, because a generous match encourages participation and the ACP test is passed easily. We typically see approximately 10% of a large plan population using the mega backdoor Roth feature--perhaps a couple of hundred individuals in a 2,000 participant plan (typical for our clients). That's enough to slightly degrade the ACP test results (because most using mega backdoor Roth are HCEs) but not enough to cause the ACP to fail.

The bigger issue that we see occasionally is 415 limit violations, if someone miscalculates benefits or compensation and the aggregate limit for deferrals, match and after tax exceeds the DC 415 limit. We see a handful of 415 limit violations annually on our larger plans with this feature--I'd approximate the number as about 5 per 10,000 eligible, or 1,000 using the feature. So 415 limit violations are not common, but they do happen.