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ASPPA DC-2 Chapter 5 Key Terms
ASPPA DC-2 Chapter 5 Key Terms
15
Finance
Professional
08/07/2009

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Term
401(k)(12) safe harbor
Definition
The safe harbor under IRC 401(k) (12) is effective for plan years that begin after 12-31-1998. This is sometimes called a 401(k)(12) safe harbor
Term
401(k)(13) safe harbor
Definition
The safe harbor for QACAs under IRC 401(k)(13) is effective for plan years that begin after 12-31-2007. This is sometimes called a 401(k)(13) safe harbor or a QACA safe harbor.
Term
ACP safe harbor
Definition
"If the matching contribution formula under a safe harbor 401(k) plan satisfies certain requirements, the matching contributions are deemed to satisfy the ACP test. This is refered to as the ACP safe harbor. To qualify for the ACP safe harbor, the matching formula must satisfy the conditions prescribed by IRC 401(m)(11) (for the 401(k)(12) safe harbor) or IRC 401(m)(12) (for the QACA safe harbor)"
Term
ADP safe harbor
Definition
"To qualify for the ADP safe harbor, the 401(k) plan must satiisfy the following conditions: 1) a safe harbor contribution requirement 2) a vesting requirement 3) withdrawl restrictions, and 4) an annual notice requirement."
Term
Basic formula under 401(k)(12) safe harbor
Definition
The basic formula provides the following match: 100% match on the first 3% deferred plus 50% match on the next 2% deferred
Term
Basic formula under the QACA 401(k)(13) safe harbor
Definition
100% match on the first 1% of deferral plus 50% match on the next 5% of deferral
Term
Eligible automatic contribution arrangement
Definition
"An EACA is an elective deferral arrangement in which: 1) A participant has an option to elect to defer cash cmpensation by having the employer make a contribution to the plan instead 2) A participant is teated as having made an elective deferral election in the amount of an uniform percentage (no minimum or maximum set by the statute) of compensation until the paticipant specifically elects not to have such contributions made (or to have a different percentage contributed) (i.e., the plan has an automatic enrollment feature); 3) In the absense of an investment election by the participant, the automatic enrollment contributions are invested in accordance with DOL regulaitnos; and 4) The notice requirments of IRC 414(w)(4) are satisfied."
Term
Enhanced formula
Definition
Any match formula that provides a greater match than the basic match mormula at any level of deferral - satisfies the ADP safe harbor contribution requirement.
Term
Initial automatic enrollment date
Definition
The date that the first automatic election contribution is made on the participant's behalf.
Term
Qualified automatic contribution arrangement (QACA)
Definition
IRC 401(k)(13) offers an enrollment feature and can satisfy the definition of a QACA. A QACA is an eligible automatic contribution arrangement whereby the automatic enrollment feature meets certain minimum requirements and the plan also satisfies the safe harbor 401(k) plan requirements
Term
QACA safe harbor
Definition
The safe harbor for QACAs under IRC 401(k)(13) is effective for plan years that begin after 12-31-2007. This is sometimes called a 401(k)(13) safe harbor or a QACA safe harbor.
Term
Safe harbor 401(k) plan
Definition
A 401(k) plan that satisfies either the requirements of IRC 401(k)(12) or 401(k)(13) is known as a safe harbor 401(k) plan. This is refered to as the ADP safe harbor.
Term
Safe harbor nonelective contribution
Definition
A safe harbor nonelective contribution will satisfy the ADP safe harbor contribution requirement if it equals at least 3% of the employee's compenstion.
Term
Safe harbor matching contribution
Definition
A safe harbor matching contribution will satisfy thye ADP safe harbor contribution requirement if it is no less than the contribution determined under the basic formula described in IRC 401(k)(12)(B) or under an enhanced formula
Term
Wait-and-see approach
Definition
"If the employer is inteding to privide the 3% nonelective contribution as the safe harbor contribution, the plan can actually be designed as an ADP-tested plan, with the ability to amend the plan into a safe harbor plan as late as 30 days before the last day of the plan year. To use the technique (the wait-and-see-approach, also termed by many practitioners as the ""maybe notice"" approach), the plan document must be drafted to provide for normal ADP testing."
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