Safe Harbor Nonelective Contribution vs. Term < 500

[Guest LWilson]

Although an employer may not impose a 1,000 / last day requirement in order to allocate the 3% safe harbor nonelective, can an employer exclude a participant who would otherwise be eligible, but termed with fewer than 500 hours (statutory exclusion)?

[Guest kgsingletary]

Page 11.401 of the 2001 ERISA Outline Book

Appendix A: Table of 401(k) Safe Harbor Requirements

"Must provide safe harbor contribution to all NHCEs who are eligible for the 401(k) arrangement (IRS Notice 98-52)"

"May not require minimum hours (e.g. 1,000) or last day employment to accrue the safe harbor contribution"

Hope this helps!

[rcline46]

If the person was eligible during the year and not excludible due to the 21/ 1year rules (statutory exclusions) then they MUST receive the 3% non-elective.

A person who terminates with <500 hours is not a statutory exclusion.

[Tom Poje]

LWilson (and others):

for clarification:

Term < 500 hours does not fall under the 'otherwise excludabled' group. The 'otherwise excludables' are those people who would not have entered the plan IF the plan had imposed a 1 year/age 21 requirement.

and remember, just because an ee terms and has less than 500 hours, he still might be eligible for a contribution. in the case of a safe harbor, he has to be. and since he receives a contribution, he is not excludable from the testing.