Design-based safe harbor and salaried employees

[Guest mcw]

I have a situation where an employer has a profit sharing plan for salaried employees only and a separate 401(k) plan for everyone. The allocation formlua is compensation to total compensation. Assume they can pass 410(b).

1. Is this a design based safe harbor or do they have to run the general test?

2. If it is the general test, I am assuming they will have to include all employees regardless of whether or not they are salaried. Correct?

3. If the plan is top heavy, do all employees get the top heavy minimum?

4. Would you answer to 3 above be different if the 401(k) plan was not in existence?

Any cites would be appreciated.

Thanks

[Blinky the 3-eyed Fish]

You say that to assume they pass 410(b), but you other questions make me want to explore this further. What are your nonexcludable HCE and NHCE counts for both the salaried employees and everyone else?

[Guest mcw]

I said assume they pass 410(b) because I do not know if they do yet. I am getting the information to run the average benefit percentage test. I believe they have 5 HC salaried employees, 1 HC hourly employee, 17 NHC salaried employees, and 25 NHC hourly employees. If they pass or fail 401(b), I am still going to have the other issues to deal with.

[Blinky the 3-eyed Fish]

The answers depend on how your coverage test turns out. If the PS plan is able to pass coverage on its own, then:

1. It's a safe harbor

3. No

Now, if the plan fails coverage on it's own, it would seem unnecessary to need to aggregate the 401(k) plan because from your post it appears as if no PS contribution is being made. Instead you would have to correct the 410(b) failure (depending how your document reads of course) by beginning to add some NHCE's to the benefiting group. But if that is not correct and you have to aggregate for some strange reason then:

1. I don't know because I don't know what the formula would be

3. Yes

[jquazza]

Blinky,

you say if the plan is able to pass coverage on its own, no TH min needed for participant in 401(k). That's not exactly correct if you have a key employee who participates in the (k) plan. It looks like they may since they do have an hourly EE who is HCE as well, my guess is he/she is related to owner, would make him/her both an HCE and key and if plans end up being TH, (k) participants would be entitled to TH min as well.