Discretionary match on top of SH match

I think I know the answer to this but want to see if there is agreement.  If a plan uses a SH match of 100% of the first 4% to pass ADP, then also allocates a discretionary match of 100% of deferrals between 5-7%, it looks like 401(m)-2(a)(5)(iv) says that we have to run the ACP test on the 5-7% match (in other words, anything over 4%). 

Is it dependent on which SH formula we use?  For example, what if the SH match was 100% of the first 6%, then a discretionary match on 7-8%?  In that case would we have to run the ACP only on the 7-8% match, or on any match over 4%?

Thanks for any thoughts!

I'm confused is your discretionary match 0% on the first 4% and something above 4%?

If yes I think you have more testing than just ACP.

AKConsult, the way the reg reads ("permitted"), I think you can either run ACP on the entire 7%, or on just the portion that exceeds 4%. For the life of me, I've never understood why that would be helpful, but it seems you can do it either way. Re your second question, the reg seems clear that you can only split off and test separately the matching contributions over 4% of comp.

the regulations say you are permitted to exclude matching that does not exceed 4% of compensation.  What does this mean mathematically?

Lets say you have a SH formula of 100% of the first 4%.  then a discretionary match of 0% on 1-4% of deferrals, but 100% on 5-7% of deferrals.  this passes ADP but does not pass ACP.  The Regulations say I am permitted to run ACP by excluding match that does not exceed 4% of pay.  If a person has pay of $30,000 and deferrals of $3,000 and a match of $2,100, how much of the $2,100 must go in the ACP?    So is this person's ACP  $900/$30,000 = 3%?

I have done some additional reading on the this in the Code/Regulations as well as the EOB.  I am now of the understanding that if the ACP safe harbor has been "blown" by virtue of either a SH matching that doesn't meet ACP safe harbor or because there is an additional discretionary match that takes the plan out of ACP safe harbor, then the ACP test must be performed on all matching.  EXCEPT the regulations also give the option of carving out the first 4% of pay match when the ACP is performed.  Thanks!

Right, AKconsult. That is the way I read it. And I guess the way that helps is that if you fail on that additional 5% to 7%, and would also have failed, e.g., on the last 1% of the first 4%, if you had to run ACP on that, all the HCEs are still protected by SH on their first 4%.

I point out since preapproved documents must contain the ACP testing provisions, it's a really good idea to see if the document supports the exception for the first 4%.   I am not saying you cannot do so if the plan is silent - only that some will say so - perhaps an auditor.

Also, you cannot have an ACP safe habor unless one is declared in the document for the PY, and thus if you blow the ACP SH, you have technically failed to follow the terms of the document (as would also be true for a failing ADP SH.  So a cautious practitioner will self-correct whenever a ADP/ACP SH fails.