Best plan suggestion

[Guest yukon]

Employer (construction firm) has about 100 salaried, full-time employees. Hundreds more who work on an "as needed" basis. These are not all necessarily hourly employees. Most will work more than 1000 hours per year. Do not know if they're contract labor or not.

Employer wants options on plan design that will only benefit his full-time staff. The "as needed" employees do not seem to fit any excludable classification. A one-year wait won't really help either, since a lot of them will satisfy that requirement.

Anyone have any ideas that will still pass coverage?

Thx.

[wmyer]

How about a profit-sharing plan with a 2-year wait? Or a SEP with a three-year wait? Are any of these employees collectively-bargained?

Why doesn't the employer want to benefit the "as-needed" employees? If it is a cost issue, what about providing at least a traditional 401(k) that wouldn't require any employer contributions (as long as it's not topheavy)? If ADP testing is an issue, the HCEs can be excluded or their contributions can be limited.

[mbozek]

Employees can be exlcuded based on service with a particular work unit or geographical locality as well as job description.

[Guest yukon]

The P/S plan with 2-year wait would still, eventually, include the contract people...one thing the ER wants to avoid. Also, he wants to let HCEs max out on the (k) side...so excluding them isn't an option either.

Not sure about the SEP idea. Isn't there a maximum employee count, over which you can't have a SEP?

The reason for excluding the contract people is because the majority of them won't participate anyway. They'll definitely have ADP problems. Possibly aslo T-H issues.

[Guest yukon]

mbozek-

What about coverage testing?

[mbozek]

It has to meet the ratio % test of 410(b), e.g., cover enough NHCES in the eligible class to pass the test.

I dont understand who the contract people are- are they leased ees, independent contractors, etc?

[Guest yukon]

not sure yet the exact nature of those employees. We're checking into that now. My assumption is that they're contract laborers.

Regarding 410(b)...you used the term "eligible class" when talking about coverage. Don't I have to include the excluded NHCEs in the coverage test?

[Leopurrd]

The reason for excluding the contract people is because the majority of them won't participate anyway. They'll definitely have ADP problems. Possibly aslo T-H issues.

I may be stating the obvious, but in regards to your post (quoted), why not establish a Safe Harbor 401k with a match? This way, those who defer will receive a match, those who do not participate will not receive anything, and your owners can max out? Also, you would go around the pesky TH issue if you didnt contribute anything else..????

However, the downside is that the match is required- may be too hefty for the employer? But, if he thinks most of the contract people won't participate, this may not be a problem....

[wmyer]

There is no maximum number of employees in a SEP, unlike a SIMPLE IRA. There is no CODA feature in any new SEP. However, you may consider establishing a nonqualified plan for the HCEs.

[Guest yukon]

Thanks all. We considered the NQDC plan, but most of the staff are not executives, officers, etc.

We also pitched the Safe Harbor idea as the most likely scenario for accomplishing what he wants to do. The push back there is that he doesn't want to be "locked in" to making company contributions.

Think this one may be a lost cause.

[buckaroo]

I am just taking a stab at this and I am not sure I am right, but how about passing the average benefits test for coverage? You said that there are hundred of "as needed" folks who would probably become eligible if allowed in.

You could set up a tiered allocation profit sharing plan with a 401(k) component. You could exclude the "as needed" participants and allow your hces and staff to participate. Depending how many total nhces you have counting the "as needed" will dictate what percentage needs to be covered. Take a look at the Safe Harbor Unsafe Harbor corridor. This will tell you how many need to be covered. If you cover enough, you have to next pass the ABPT.

For the ABPT, you could make a P-S contribution to pass it (using the tiers) or you could make a QNEC (possible to nhce's only) to pass it and help with the ADP test. (For the P-S, you could give the hces nothing. You could even write the tiers so that the lowest paid youngest employees are in their own groups and get a contribution and provide you with a very large ebar, if cross testing.) If you give the same cont to all nhces, you can give them very large cotnribution. The basic problem with this is how much money the client would have to give the nhce group. Depending on the age of the participants, you can cross test it. In this case, you need to be aware of the gateway requirements.

Again, these are just brain storming thoughts off the top of my head. I apologize that it is a bit scattered.

[Guest trumpy]

Yukon - how many of the 100 salaried employees you mentioned in your original post are HCEs? Is the HCE group entirely composed of employees you could cover under a non-qualified plan?

If so, you could start up a plan excluding the contracting laborers and HCEs. You would not have any testing to speak of since only NHCEs benefit. And, you could cover the HCEs under the non-qualified plan.

Just a thought.

[Guest yukon]

buckaroo - Thanks. We're discussing this as one possibility.

trumpy - also a good idea. We may pitch this one too.

Again, thanks all.