Search the Community

The client has an existing 401(k) Safe Harbor Match plan where Key Employees participant. This plan has immediate entry. A Cash Balance plan and a Profit Sharing plan are added, where Key Employees also participate. The Cash Balance and Profit Sharing plans have a one-year wait for eligibility. Question #1......Since Key EEs participate in all three plans, I believe all three plans are part of the 416 required aggregation group. The 416 required aggregation group is Top Heavy. Does the 401(K) Safe Harbor plan lose the Safe Harbor Top Heavy exemption, and now have to provide 3% of Compensation to those that are in the 401(k) Safe Harbor plan but not yet in the CB or PS plans? I believe the answer is no. Question #2..... The CB and PS plans only benefit employees of specific job classifications (i.e. dentists, hygienists and technicians), and would satisfy the subjective reasonable classification test. If each plan individually passes the 70% coverage ratio, then I think I'm good and no need to do ABT. However, it's not looking like that's possible and I'm going to need to do ABT. If I need to do ABT, I believe I'm required to pull in the 401(k) deferrals and Safe Harbor Matching contributions. Is this correct? Question #3..... If the 401(k) Safe Harbor plan is pulled in for ABT, have I blown the Safe Harbor TH exemption and now have to provide a 3% of Compensation TH Minimum to everyone who is in the 401(k) Safe Harbor plan but not yet in the CB or PS plans? I think the answer is yes because now I'm using the deferrals and match for coverage. Side note.... If I include the deferrals and SH match I easily pass ABT, then also easily pass 401(a)(4).

Looking for some expert opinions on a strange case (at least for me). A 401(k) plan has enhanced Safe Harbor Match (100% - 4%) that only satisfies ADP. There is a discretionary match of 25% up to 20% for a small group of NHCE so ACP testing is required (don't ask why - a previous TPA let them put it in without explaining the ACP issue). There is a large population of Service Contract Act employees who receive prevailing wage contributions in the plan. The plan document specifies that prevailing wage contributions are QNEC's that offset Safe Harbor Match. When running the ACP test, should all of the prevailing wage contributions be included for all of the SCA employees - with the 10% limit taken into account? I am having difficulty finding an answer and our software doesn't want to do it. I can usually rely on our software to do the right thing, but I think the prevailing wage contributions should be included in ACP based upon the Safe Harbor Match offset.

This is a case where I was SO sure I knew the rules and it appears that I do not! A client has a Top Heavy 401(k) plan with deferrals, Safe Harbor enhanced 4% match, and integrated profit sharing. They use all of it - maxing out the doctor/owner via the profit sharing contribution and contributing whatever is required for the rank and file. The profit sharing has a last day and 1000 hour requirement. One participant worked less than 1000 hours every year except for 2014. That one and only year, she got her 1000 hours, met eligibility for the first time and got into the plan. For 2015, she did not defer and of course did not get a match, but she got the 3% TH minimum. In 2016 she began deferring 4% of pay and got the SH match but NO profit sharing. In 2017, same thing. I was working on 2018, noticed that once again, she deferred and got the SH match but no profit sharing at all. I thought we had made a mistake in 2016 and 2017 and were about to make a mistake in 2018 by not giving her the TH minimum 3% in addition to her SH match. I knew that if a plan had ONLY SH Match and no profit sharing at all, then the Top Heavy requirements were deemed to be satisfied. But I believed that from the moment you gave the HCEs 3% or more in profit sharing, you had to be sure that all of the NHCE participants got at least 3%, even those who didn't work 1000 hours. I questioned the software vendor as to why the under 1000 hours participant did not receive a 3% TH minimum for 2016-2018 and I was told that the employer doesn't have to give her a TH minimum 3% profit sharing contribution because she got 4% in SH Match and that takes care of it. So if there had been 4 under 1000 hours participants in the plan, and 2 deferred 4% of pay and 2 deferred nothing, the 2 who deferred and got the SH match get NO profit sharing, and the 2 who didn't defer anything would get the Top Heavy minimum 3%? That hardly seems fair or right, but what do I know...... I just want to run this up the flag pole and be sure that others agree. If this is really right, so be it - what do you say? Thanks as always.

Client went through high turnover this year. 2 HCEs 1 NHCE > 1000 hrs 3 NHCEs terminated - 1 > 1000 hrs, 1 900 hrs, 1 < 500 hrs. All left months apart, voluntarily. Two were partially vested. 2 HCEs defer 3 NHCEs defer HCE owners want to max his allocation. Profit-Sharing has last day/1000 hr condition. I think I have to add back 2 terminated NHCEs to pass 410b Wrinkle - Plan has "New Comparability" checked as allocation. Historically, allocation has been Integrated. I think I can allocate as if "integration" was check on the AA. Just want to make sure my "bad news" is solid.

Plan document calls for safe harbor matching contribution to be determined on a payroll v payroll basis (with no true up). True up calculated for 2016 and 2017 and deposited by Plan Sponsor. How do we correct? We were going to forfeit the excess amount due to true up with earnings and file under EPCRS. Anyway to avoid this? Suggestions greatly appreciated.

I have a question. The Erisa Handbook tells you that you need to combine the match under both the safe harbor formula (basic formula; 100% of first 3%, 50% of next 2%) and the discretionary match to see if it meets the ACP safe harbor requirements. I don't really understand why. Basically I want to know if someone defers 5% and a plan does the basic safe harbor match formula but also wants to do a 100% of the first 4% discretionary match, would ACP testing have to be done or does it meet the ACP Safe Harbor Requirements? I guess my question is do you apply the 6% rule (matching contributions may not be made with respect to elective deferrals in excess of 6% of comp) independently to the discretionary match, or do you have to combine the safe harbor and the discretionary together and then apply the 6% rule?

Scenario 1 The plan is a basic safe harbor matching plan where employees are also grouped in classes for profit sharing purposes. If only one class of the NHCE receive profit sharing contribution, does this trigger Top Heavy test or any other test at all (except 410(b))? due to the fact other NHCE classes didn’t receive any profit sharing contribution? Scenario 2 The plan is a 3% safe harbor NEC plan where employees are also grouped in classes for profit sharing purposes. If only one class of the HCE are excluded from getting the 3% Safe Harbor, does this trigger Top Heavy test or any other test at all (except 410(b))? assuming no other contribution except deferrals and 3% Safe Harbor

What is the Gateway Minimum for the NHCEs in the following scenario? HCE is receiving the Safe Harbor Match (capped at 4%) and a 10% Profit Sharing Allocation. Assume NHCEs did not receive any SHM because did not defer any 401k. Also assume 401(a)(4) testing is passed with as little as a 3% PS allocation to the NHCEs. Is the Gateway Minimum additional allocation requirement 0.34% (3%PS + 0.34%GW = 3.34% * 3 = 10% PS allocation to HCE)? OR Is the Gateway Minimum additional allocation requirement 1.67% (3%PS + 1.67% GW = 4.67% * 3 = 14% total SHM+PS allocation to HCE)?

My question is in regards to a plan that has a safe harbor match using the per payroll period formula. An employer is in transition to change payroll providers, and adopts the new payroll provider's plan. They will continue the per payroll safe harbor match in the new plan. What if there is a two month gap between the last payroll of the prior plan, and the beginning payroll of the successor plan? Is there a safe harbor obligation for the gap period, or is the obligation only there for those payroll periods actually made in the prior plan and successor plan?

A colleague of mine and I are disagreeing over a plan's ability to provide a disproportionate match as a Safe Harbor contribution. A disproportionate match, defined at 1.401(m)-2(a)(5)(ii), occurs, generally, where an NHCE receives a match that is greater than both (a) 100% of deferrals and (b) 5% of compensation. So, for example, a match of 200% up to 3% of comp would be fine until you defer past 2.5% of comp (at which point the contribution exceeds 5%). Generally, the consequence is that the disproportionate portion is ignored for testing purposes. Because only NHCE amounts can be disproportionate, it's meant to prevent trying to game the ADP/ACP test with weird matches. Here's the issue: In defining a safe harbor match, 1.401(m)-3(j) says the contribution will only be taken into account if it meets 1.401(k)-3(h)(1), which, in turn, says the contribution needs to meet the requirements of 1.401(m)-2(a), which of course includes our friend the disproportionate match rules. The implication, then, is that you couldn't have a safe harbor matching formula that could produce a disproportionate match. However, there doesn't seem to be any other support such a position. There's been no guidance that I can find on the interplay one way or the other. In all the articles/resources on permissible safe harbor matching formulas, nobody's mentioned the disproportionate match rules as an issue. Further, in laying out proposed safe harbor matching contributions, a number of the big-name providers have included formulas which would run afoul of the disproportionate match rules. Of course, none address the issue explicitly. Has anybody ever heard of this analysis? Have you dealt with safe harbor formulas that may trigger disproportionate matching contributions?