Controlled groups and safe harbor 401(k)

[Lori Foresz]

Hi,

Can two members of a controlled group have two 401(k) plans, one safe harbor and the other not?

There is only one HCE (the 100% owner) and he will not participate in the non-safe harbor plan, so logic would say that his deferrals under the safe harbor plan would need to be aggregated/included in the ADP test for the non-safe harbor plan and top heavy aggregation would not apply. The safe harbor plan would satisfy coverage including the other group (it is much smaller). The non-safe harbor plan would have an exception to coverage since no HCE would benefit under the plan.

Am I missing a critical issue here? It seems too good to be true.

Thanks for the help!

[Lori Foresz]

Hi,

I meant to say that the HCEs deferrals would NOT be included in the ADP test for the non-safe harbor plan. This is because he would not participate in multiple plans of the controlled group, so no aggregation would be required.

Sorry for the typo.

[Tom Poje]

I can not tell from your description exactly what the situation is. you indicated that the HCE will defer in the safe harbor and will not participate in the non safe harbor plan.

do you mean he is not eligible for the non safe harbor or that he is eligible and will not defer?

The preamble to the proposed regs says "The ADP of an HCE who is ELIGIBLE to participate in 2 or more CODAs of the same employer is calculated by treating all CODAs in which the employee is eligible to participate as one CODA.

[Lori Foresz]

Hi,

Thanks Tom. The owner will not be eligible to participate in the non-safe harbor plan. The way I'm thinking about this (and this may be wrong) is that he doesn't work for the company that sponsors the non-safe harbor plan (although he owns it)so we wouldn't need to specifically exclude him (but maybe we do, not sure). Thanks for your help.