How and When to use a Safe Harbor Super Match (aka the Pancake Match)

Business owners usually want to maximize 401(k) plan contributions for themselves and their family. Most of the time this is achieved with a custom profit sharing allocation to accompany the safe harbor contribution.

However sometimes the company demographics do not support an efficient custom profit sharing allocation, or the business owner does not wish to contribute to employees who do not defer their own salary into the plan.

When this is the case, a Safe Harbor Super Match may be an option. This is commonly referred to as a stacked match, or a pancake match, as the matching formulas are stacked on top of each other like pancakes.

These stacked formulas create a large match only for those that participate with at least 6% of their salary.

The pancake match has three layers:

The first layer of the match is a basic safe harbor match. This contribution is equal to 100% of deferrals up to 3% of compensation, then 50% of deferrals up to an additional 2% of compensation. If someone contributes at least 5% of pay, this will equal a match of 4% of compensation.

The second layer of the match will be a safe harbor discretionary matching contribution. Under the safe harbor rules, this contribution cannot match deferrals in excess of 6% of pay, and the matching amount cannot exceed 4% of compensation.

This discretionary match equals 66.67% of deferrals up to 6% of compensation. (66.67% of 6% is 4%, the maximum discretionary matching contribution).

The third layer is a fixed match contribution. A fixed match contribution qualifiesas a safe harbor matching contribution if it does not match deferrals in excess of 6% of compensation. The matching formula for the fixed match layer is equal to the balance needed to reach the 415(c) limit (the amount after subtracting deferrals and the first two layered amounts) divided by 6% of compensation.

That’s a lot of math to ponder, so let’s apply it to a real world scenario using 2024 plan compensation limits. In our example the business owner earns at least $345,000. She defers 6.7% of her compensation. Here’s how the Safe Harbor Super Match works:

After a salary deferral of $23,000, the amount needed to reach the 2024 415(c) limit of $69,000 is $46,000.

The first layer equals 4% of eligible compensation with a result of $13,800

The second layer adds another 4% of eligible compensation for $13,800

The third layer is 89% of 6% of compensation, which equals $18,400, for a total matching amount of $46,000.

To make the math even simpler, the Safe Harbor Super Match works out to around 13.3% of the participant’s compensation if they defer at least 6%. A vesting schedule can be applied to the second and third layers to help retention. Employees who don’t defer do not receive the match. Those that defer less than 6% of their compensation would receive a lower match also.

This match could be a good alternative for plans with low participation or do not have many highly employees beyond the owners.