Guest MES Posted November 27, 2001 Posted November 27, 2001 :confused: I have seen in the 401(k) Answer Book that the safe harbor 3% nonelective contribution may be used for a cross-tested plan, but it may not be used for the first tier when a plan uses permitted disparity. (It does not list a cite.) I am wondering why it can't be used with an integrated plan. Any input is appreciated.
R. Butler Posted November 27, 2001 Posted November 27, 2001 Notice 98-52, Section VIII.B. provides that the nonelective contribution cannot be used for imputing permitted disparity. Why? I don't know.
Tom Poje Posted November 27, 2001 Posted November 27, 2001 I think the IRS reasons that the 3% safe harbor is tied to deferrals (e.g. you get a free ride on the ADP test). since it is related to deferrals, you can not use it as part of integration...you would not integrate a match, or a QNEC, so the logic is the same. also, because you can't integrate it, you also can't impute disparity on the 3% if you are using it for cross testing purposes.
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