Eligibility for Safe Harbor 401(k) Plans

[MBCarey]

I am sure this has been answered so excuse me for asking again.

We currently have a 401(k) plan with an integrated profit sharing piece. Currently eligibility for this plan is 18 months, vesting is immediate.

Their normal contribution rate is always around 7-8%. We are trying to get to change to a Safe Harbor 401(k) Plan with the profit sharing piece allocated as new Comparability. The scenario that I am trying to work out would be to give the NHCE's a little over 5% total and the remaing amount allocated to the HC's. THis appears to pass the Gateway and allow the HC's to defer w/o ADP Testing.

My questions are:

Am I correct is stating that for the 401(k) SH piece, I can only use 1 year as the eligibility? Can the profit sharing piece which still maintain the 18 Month entry Date.

Also, does the scenario above sound ok to you guys.

[Tom Poje]

yes but....

yes, you can only have 12 month wait on safe harbor (though of course entry dates could delay things up to 18 months maximum.

you could maintain the ps at 18 months but for what purpose? If ee receives SHNEC only, to pass gateway minimum you would probably have to kick him up to the 5% anyway.

[MBCarey]

Tom, If we run just a straight 401(k) with the profit sharing contribution run as New comparability, can we have the 18 month eligibility and last day apply?

Marybeth

[Tom Poje]

another of the famous

yes, but....

If you have a regular run of the mill 401k, you can have an 18 month wait /last day for cross tested profit sharing.

however, if the plan turns out to be top heavy, you could have someone who is eligible to defer but hasn't completed the 18 months.

since that person is in the plan they must receive a top heavy minimum.

And once they receive the top-heavy, since plan is cross tested, they must receive the gateway - or at least if they have been there the 12 months. If I recall, if plan had immediate eligibility for deferral, you could test as otherwise excludable, and provide the top heavy only to those ees.