HCE transferred from Non-safe harbor to safe harbor plan could violate safe harbor requirements

[Guest hyper]

Scenario - ER maintains two plans, one safe harbor and one non-safe harbor for different groups of EE's. The non-safe harbor plan has a 150% match on first 3% of comp. and safe harbor match is 100% on first 3% of comp. If an HCE transfers from the non-safe harbor plan to the safe harbor plan, the aggregate match he or she receives for a year will be greater than the safe harbor match provided in the safe harbor plan. (150% match for part of the year and 100% match for the rest of the year.

According to notice 98-52, this violates the safe harbor requirement that on HCE can not received a greater rate of match an NHCE. See Notice 98-52 (Section IX.B.2)

Has anyone come across this problem and how have you dealt with it ? Has Notice 98-52 been superceded ?

Just seems odd to me that transferring an HCE from one employee group to another for legitimate business reasons could potentially disqualify the safe harbor plan.

[rcline46]

Posited scenario not possible. All plans of employer must be safe harbor or all not safe harbor. See regs and 98-52

[Guest hyper]

Sorry, I don't see that requirement in either the regs. or notice 98-52.

In fact, Section IX.A.1 of Notice 98-52 says " Safe harbor matching or nonelective contributions may be made to the plan that contains the CODA or to another defined contribution plan that satisfies section 401(a) or section 403(b)".

Additionally, Seciton IX.B.2 (second sentence) of 98-52 discusses an HCE that participates in two plans of the ER, one that is a safe harbor and the other is not a safe harbor.

rcline46: If you have a specific site you are relying on, it would be a great help if you post it up.

Anyone else think an ER can not sponsor a safe harbor and non-safe harbor plan at the same time ?

[rcline46]

First I base my opinion on Notice 98-52 IX B. 1. on permissive aggregation.

Should I be wrong in my interpretation (the service has yet to issue guidelines on mergers and acquisitions and such stuff as listed in 2000-3), then I would think you would only measure the HCE while eligible in each plan.

[Guest hyper]

recline: Thank you for the site. I read that section to only require all plans to be considered one plan if they are required to be aggregated or the ER permissivly aggregated plans for 410 purposes. - Now reading it again, I do see your concern.

Thanks again.