Rev. Rul. 2004-13

[Guest Giovanni]

I've just read Rev. Rul. 2004-13 and there is a sentence in it that has me cunfused. The sentence is in the 4th paragraph under LAW AND ANALYSIS. It states "Also, a plan does not meet the requirements of 401(k)(12) if, under the terms of the plan, a nonhighly compensated employee is eligible to make elective contributions but is not eligible to receive either a safe harbor nonelective contribution or a safe harbor matching contribution".

I've always thought that a safe harbor 401(k) plan could have a more liberal eligibility period than one year for deferral purposes, yet require a one year wait to be eligible for the safe harbor contribution. The sentence in the Rev. Rul. seems to be saying something different. Has anyone noticed this or have any comments?

[Harwood]

You can exclude the newly employed from the employer contribution and be a safe harbor plan.

But if you do include them for deferrals but exclude them from employer contributions, you don't get the "free pass" on the Top Heavy issue.

[Guest Giovanni]

That has also always been my understanding. Yet, isnt the sentence from the Rev. Rul. I quoted above saying somthing else?

[Harwood]

Further on in Rev Rule 2004-13:

However, certain plans that provide for early participation may satisfy the requirements of § 401(k)(12) with respect to the portion of the plan that covers employees who have completed the minimum age and service requirements of § 410(a)(1), while satisfying the ADP test of § 401(k)(3)(A)(ii) for the eligible employees who have not completed the minimum age and service requirements.

[QDROphile]

Giovanni, do you understand how plans that allow elective deferrals to everyone right away and employer funded contributions only after a year of sevice must be disaggregated in order for the plan to fit the safe harbor? The disaggregated potion that covers the participants with less than a year of service is not a safe harbor plan and must be tested. But it usually passes automaticlly because it has no HCEs. If you can't disaggregate, none of the plan can be safe harbor. That is what the passage means.

[Guest Giovanni]

Thank you for your comments. I got it!