Age Weighted/SH 401K

[K-t-F]

Existing age weighted plan... wants to allow deferrals. Since all the EEs are 100% vested already, would the age weighted contribution count as the 3% SH to pass SH requirements? or would an additional 3% need to be added in addition to the age weighted allocation?

[sloble@crowleyfleck.com]

What is an age-weighted contribution? To whom is it made and are there any restrictions as to eligibility to receive it?

[K-t-F]

The allocation of the contribution would be skewed towards the older participants on the premise that they have less time to fund for retirement. Standard eligiblity ( 21/1 , year of service is 1000 hours)

[R. Butler]

The likely answer is no the age -weighted contribution would not count as the 3% safe harbor. Under 98-52 Section V.B. the employer must be required to make a SHNEC. Obviously I don't know the wording of your document, but its likely that your profit sharing provision is discretionary. I'd also be suspicious as to whether the age weighted formula can even guarantee a 3% contrib. to everyone even if a contrib. is made.

[TBob]

I have found that the 3% SHNEC and age weighted plans don't go well together.

Consider the advantages of an age weighted plan. First, since you are allocating based on age adjusted compensation, the EBARs should all be the same which means you should pass a(4) testing. The Second advantage is broadly available allocation rates which means that you don't have to worry about the gateway minimum contribution. You have already satisfied the gateway requirement by having broadly avail alloc rates.

Now, throw another non-elective contribution (SHNEC) into the mix. Because you are giving everyone 3% on top of the Age Weighted allocation, the EBARs are no longer the same for every person. Depending on your demographics, you may fail the general test. You also probably loose the broadly available allocation rates and are back to meeting the minimum gateway contribution.

The SHNEC defeats the advantages of the age weighted plan. It may still work out ok for you depending on your specific situation but I usually recommend the SH match with age weighted plans.

[Tom Poje]

in addition, a SHNEC is subject to the same withdrawal restrictions as a deferral.

the age weighted allocation, though 100% vested would not be

[K-t-F]

Thats why I ask these questions... and why this forum is so valuable. Thanks for the insight.