Dual Eligibility with ADP/ACP Safe Harbor?

[Guest noelwolfe]

We have a client interested in adopting a Safe Harbor design (as provided by SBJPA) to avoid ADP and ACP testing. They would like to satisfy the Safe Harbor by making an enhanced matching contribution ($1.00 for each $1.00, up to 5% of compensation), which will be made after an employee achieves a year of service. Further, the client would like to allow employees to be immediately eligible to participate in 401(k) salary deferrals. I understand that this design will require ADP testing for the period when an employee does not have the right to receive the Safe Harbor matching contribution. However, I am unsure of how this testing would be performed. Would this testing be performed only for HCEs and NHCEs, who have less than 1 year of service? If so, is it correct that there would be no HCEs, as determined by prior year compensation, included in this testing (since this group would not have any prior year compensation)? It seems that this testing would always pass, unless the company’s ownership changes and there is a newly eligible HCE, as determined by 5% ownership. Am I correct?

[ccassetty]

You got it right! Only those who don't meet the one year, age 21 would be tested separately. There would not be any HCEs unless you have new 5% owner( or new family member of a 5% owner).

[Guest noelwolfe]

Thanks, Carolyn!

It seemed too easy to me for some reason.

I appreciate your response.

Noel