Example. Employee A, an HCE with compensation of $120,000, is eligible to make employee contributions under Plan S and Plan T, two calendar-year profit-sharing plans of Employer H. Plan S and Plan T use the same definition of compensation. Plan S provides a match equal to 50% of each employee's contributions and Plan T has no match. During the current plan year, Employee A elects to contribute $4,000 in employee contributions to Plan T and $4,000 in employee contributions to Plan S. There are no other contributions made on behalf of Employee A. Each plan must calculate Employee A's ACR by dividing the total employee contributions by Employee A and matching contributions under both plans by $120,000. Therefore, Employee A's ACR under each plan is 8.33% ($4,000 + $4,000 + $2,000/$120,000).
Employee contributions (percentage) | Matching contributions (percentage) | Actual contribution (percentage) | |
Highly compensated employees | 4 | 2 | 6 |
Nonhighly compensated employees | 3 | 1.5 | 4.5 |
Employee | Compensation | Elective contributions | Employee contributions | Matching contributions |
A | $190,000 | $15,000 | $3,500 | $9,250 |
B | 100,000 | 5,000 | 10,000 | 7,500 |
C | 85,000 | 12,000 | 0 | 6,000 |
D | 70,000 | 9,500 | 0 | 4,750 |
E | 40,000 | 10,000 | 0 | 5,000 |
F | 10,000 | 0 | 0 | 0 |
Employee | Compensation | Employee contributions | Matching contributions | ACR (percent) |
A | $190,000 | $3,500 | $9,250 | 6.71 |
B | 100,000 | 10,000 | 7,500 | 17.50 |
C | 85,000 | 0 | 6,000 | 7.06 |
D | 70,000 | 0 | 4,750 | 6.79 |
E | 40,000 | 0 | 5,000 | 12.50 |
F | 10,000 | 0 | 0 | 0 |
Employee | Compensation | Elective contributions | Employee contributions | Matching contributions |
C | $85,000 | $12,000 | $0 | $8,880 |
D | 70,000 | 9,500 | 0 | 7,030 |
E | 40,000 | 10,000 | 0 | 7,400 |
F | 10,000 | 0 | 0 | 0 |
Employee | Compensation | Elective contributions | Employee contributions | Matching contributions |
C | $85,000 | $12,000 | $0 | $6,000 |
D | 70,000 | 9,500 | 0 | 4,750 |
E | 40,000 | 2,000 | 0 | 8,000 |
F | 10,000 | 0 | 0 | 0 |
Employee | Compensation | Employee contributions and matching contributions | Actual contribution ratio (percent) |
A | 200,000 | 14,000 | 7 |
B | 150,000 | 13,500 | 9 |
C | 100,000 | 12,000 | 12 |
Average 9.33 |
Actual deferral percentage | Actual contribution percentage | |
Employee D | 7.5 | 3.75 |
NHCEs | 4 | 2 |
Example.
26 C.F.R. §1.401(m)-2