Safe Harbor PlanTwo-Year Wait?

[ljr]

Existing plan has a two year wait for eligibility with 7/1 and 1/1 entry. Upon entry, participants are 100% vested. It's a profit sharing plan for a partnership which has always contributed 15% of total compensation, allocated comp to comp. They want to add a safe harbor 401(k) provision and use their fully vested contribution for the safe harbor non-elective. They would also make catch-up contributions available. Is the two year wait a problem? Site? The objective, I believe, is to let the partners take advantage of going over the 415 limits by the catch-up amount.

Should the 3% safe harbor non-elective contribution be tracked separately from any additional profit sharing money? I'm thinking it should, but maybe I'm complicating things? Thanks for any help and ideas!

[Tom Poje]

don't think that is possible.

you can't put any eligibility restrictions on the safe harbor contribution.

Notice 2000-3 did allow for using the 'otherwise exclusion' option, but this is only applicable for a 1 year wait and never 2 year wait.

[Guest Pensions in Paradise]

The 401(k) portion of the plan cannot require more than one year of service. IRC 401(k)(2)(D). Thus, maximum eligibility for the 401k and safe harbor components is one year, while you can keep the two year requirement for the profit sharing component.

You should track the safe harbor and profit sharing money separately since they are subject to different distribution restrictions.