Match doesn't start until 3%

This is probably been discussed before and I am just not finding what I want.  Plan has a 25% match on deferrals, but the first 3% aren't matched.  I should know this, but I've never seen that formula.  My understanding is that participants not deferring 3% would still count as benefitting for 410(b) and also count in ACP test.  I think to test for BRF also.  Is that correct and if so do I include those who do not contribute anything as non-benefitting? 

Thanks for any guidance.

Agreed that participants who are eligible for the match even though they are contributing 3% or less still count as benefitting for the 410(b) test, eligible employees in the ACP test, and benefitting for the current availability BRF test.  There is some concern that this type of match formula could have problems with the effective availability portion of the BRF testing.

So all eligible employees are subject to the same rate of match, correct? 0% on the first 3% and then 25% on deferrals above 3%. I think you are OK, even for BRFs. It would not fall under any safe harbor protections and would have to satisfy ACP testing which in a sense polices your effective availability - which is a facts and circumstances test. 

I had a similar question (match started with deferrals at 4% or more), and received pretty much the same response as CuseFan from a reliable ERISA consultant, although he emphasized effective availability should not be an issue as long as you can demonstrate that the match formula was communicated to all participants.

I have only seen this design once before. Agree with others that it is permissible, but seems like it would be hard to pass ACP.

Hey Luke, in our client's case, which is a group of engineers, the owner hammers home that they aren't going to get a match unless they defer 4% so participation is great.  For them it works well, but you are correct, this would not be a good design for most plans.

2 hours ago, Gilmore said:

Hey Luke, in our client's case, which is a group of engineers, the owner hammers home that they aren't going to get a match unless they defer 4% so participation is great.  For them it works well, but you are correct, this would not be a good design for most plans.

OK. Thanks, Gilmore.