In a safe-harbor plan, do you even need to get compensation?

[Guest bonzo]

I have a safe-harbor 401k in which all money types are 100% vested immediately and all the employees enter the plan on their first day of employment. Since you don't have to do the ADP/ACP tests, nor the Top Heavy tests, is there any reason to request annual comp or hours worked? I can't think of any.

[Mike Preston]

To confirm that the deposits have indeed been equal to 3% of compensation? To ensure that compensation taken into account does not exceed the 401a17 limit? To be able to answer the question on the 5500 about timing of contributions with respect to deferrals?

Bedtime, I think.

[rcline46]

What Mike said.

Plus - did deferrals ever exceed pay for any period? Exceed 100% of pay or whatever the plan limit is? Is retirement tied to years of service meaning 1000 hours in a year?

[Guest bonzo]

3% of comp??? I thought the whole purpose of a safe-harbor plan was that you didn't have to make a 3% contribution to all eligible employees. Am I wrong?

[Mike Preston]

It depends. What did you think it was, if it wasn't a plan requiring 3% of pay as an employer contribution to avoid the need for ADP testing? You tell us what you think "safe harbor" means and then somebody can tell you if you are wrong.

[Guest bonzo]

Sorry. I should have explained my situation better. One way to satisfy the safe-harbor requirement is to make a 3% contribution to all employees. But in my situation we are using the other method of contributions which is a match of 100% on the first 3% and then 50% on the next 2%. But this only goes to participants that defer. So other than the $40,000 limit and the question on the 5500 do you see a need to get comp?

[QDROphile]

3% of what? 2% of what?

[WDIK]

Obviously you need compensation to determine the match amount. Is your question specific to those employees who have elected not to defer? Are you asking, "Do you need compensation amounts for employees that are not deferring?"

[david rigby]

If there is another plan, might also need comp to determine deductible limits.

[Guest bonzo]

To answer QDROphile, the first 3% of compensation and then the next 2% of compensation.

To WDIK, we don't calculate the match. That is done by the payroll service. The employer is responsible for providing us with accurate deferral amounts.

To pax, there is no other plan.

Thus, I see no need for comp numbers.

[Guest oxdougw]

You must be the TPA/Recordkeeper. I'd still get comp on those deferring just to verify accurate match calculations.

[QDROphile]

bonzo:

Your questions was whether or no you need to be concerned about compensation. You seemed to be concerned about compensation when the discussion turned to the 3% safe harbor. You then seem unconcerned about the matching safe harbor, which you realize also measures percentages of compensation. So I now have the same curiosity as oxdougw. What are you responsible for? If your responsibility is data entry, you don't have to be concerned with much. If you are responsible for making sure that some or all contribution amounts or allocations are correct, then you need to be concerned with compensation.

[Brenda Wren]

Bonzo, I understand your question completely and have asked myself the same question. If the safe harbor match calculation is done by the payroll company and the allocation date is every pay period, there is no way that you can verify that the match calculation was done correctly at year-end, unless you are receiving payroll feeds and verifying this each and every pay period. Obviously, you're not or you would have the compensation figures. Nor do I think it is necessary for you to verify the payroll provider's calculations. I would have a hard time justifying my time and costs for "auditing" the work of the paid payroll provider. Now if the document required year-end "true up" calculations, of course you would need the comp in that instance. However, all that said, you need compensation to determine the HCE status for next year. You also need it to run the 415 annual additions test. It is also helpful to "generally" verify the accuracy of the match calculation. I resolved that since I have to have other employee census information, i.e. hours, termination status, new hires, etc., I might as well ask for the compensation too, even though in many cases I know 415 is not an issue and I know who will be an HCE next year.

[Brenda Wren]

I guess it's my bedtime, too. I guess you aren't too concerned about HCE status for next year. So we're down to the 415 annual additions test and a "general" verification of the match calculation in your specific example. But even so, if it were my case, I would ge the comp and the hours, too! Plans change and get amended all the time.