Comp for 3% SHNEC for plan with dual eligibility

[Guest jody303]

We have a take-over plan which provides that employees enter the plan for purposes of making elective deferrals on the first day of the quarter following their employment. It further provides that employees are eligible for all sources of employer contributions (including the 3% SH non-elective) on the first day of the quarter following the attainment of age 21 and completion of 1 yr. of svc.

Here's my question: Assuming a calendar year plan year, for a participant who becomes eligible for the employer contributions on 10/1/02, can the 3% SH non-elective be made only on comp from 10/1/02 to 12/31/02, or should it be based on full year comp? Remember, this participant entered the plan on 10/1/01 for elective deferrals.

[Tom Poje]

depends on what the document says.

safe harbor can be limited to any definition that satisfies 414(s), so it can be from date of participation. In fact, as I understand it, if comp will pass the 414s test, then you could exclude bonuses, etc

[Guest jody303]

Tom,

Thanks for your reply. I agree that comp. can be from entry date as a participant. However, my question is: is the entry date for this participant the date he first entered the plan, i.e., 10/1/01, when he became eligible to make elective deferrals OR is it 10/1/02 when he became eligible for the SH contribution? Let's assume that the document says that comp. is from entry date.

[Tom Poje]

I didn't read your question thouroughly to see what you were asking

all Notice 98-52 IV B says is that

"....(a)s provided under section 1.401(k)-1(g)(2), an employer may limit the period used to determine compensation for the plan year to that portion of the plan year in which the employee is an eligible employee..."

now, we also know that a plan with immediate eligibility can exclude employees who have not completed 1 year of service

Notice 2000-3 Q-10

therefore, you indicated, according to the terms of your document the person was not eligible for the SHNEC until 10/1/02, so I would only use comp from 10/1/02.