eligibility/entry date ???'s re 401(K)

[chris]

Client's PSP has age 21/1 yr of svc. req's for eligibility. Entry date is retroactive to the first day of the plan year in which eligibility req's are met. Client now wants to add safe harbor 401(k) provisions to the plan. Client is considering having all e/ee's employed on Mar. 1, 2003 be eligible for the deferral as well as the safe harbor contribution, but Client is unsure as to eligibility req's thereafter. Would it be unreasonable to have the 1 YOS/ age 21 requirements apply across the board? That would seem to be easier administratively speaking. Also, as to entry dates is there a happy medium regarding salary deferrals and safe harbor contributions? What appears to be the most common approach(es) regarding eligibility requirements and entry dates for the PSP, safe harbor and deferrals? thanks for the help.

[ccassetty]

Chris,

You didn't mention the plan year, if it's a calendar year, your OK starting the safe harbor 401(k) on March 1. I mention this only because of the minimum three month requirement.

I see no reason why the client couldn't continue to have a 1 year/age 21 requirement going forward. With this eligibility requirement you will have to have at least twice a year entry or better (quarterly, monthly, daily) upon completion of the eligibility requirements. I won't hazard a guess as to what is the most common. It is clear that it is perfectly OK to provide the safe harbor contribution based on compensation counted only from the entry date of the employee. The guidance also provides for the employer to provide for immediate entry for deferrals but provide the one year wait for the safe harbor contribution.

Your message isn't clear as to whether the employer is considering keeping the "first day in which" requirement, but certainly this is, IMO, something you should very forcefully steer them away from. Why this option is even available in prototype 401(k) plans is beyond me.

Other than that, you just need to sit down with the sponsor and determine what they are trying to accomplish and set the eligibility accordingly within the allowable options.

Hope this helps:)

Carolyn

[austin3515]

You obviously can't have retroactive participation dates in a 401(k). Therefore, if you keep the same eligibility requirements for the entire plan, you would need to have separate definitions of Entry Dates. What's most common is all across the board in my experience.

[chris]

For instance, they could leave the PSP contribution at age 21 and 1 year of service with the entry date retro to the first day of the plan year. However, shouldn't the eligibility requirements for the safe harbor 401(k) and for the deferrals be the same since the use of the safe harbor allows for deferrals to not be tested?

[Tom Poje]

no, in fact Q-10 of notice 2000-3 specifically states you can exclude the 'otherwise excludables' from safe harbor. Therefore, just because you are more generous letting people defer early, you don't have to provide the safe harbor to those who may have come and gone within the first year of hire.

Regardless of getting a fre ride on the test, why would you want to give them a contribution.

[chris]

Thanks Tom.

[chris]

So, the following eligibility/ participation req's would seem to be ok....

PSP contribution

elig = age 21 and 1 yr of service

part = retro to first day of plan year

Deferrals

elig = all participants employed on Mar. 1, 2003; thereafter

age 21 and 1 yr of service

part = dual entry

3% safe harbor

elig = same as deferrals

part = same as deferrals

[austin3515]

mistaken posting... sorry