safe harbor in the new 401(k) regs

[Guest anne1]

The proposed regs contained language to the effect that if an employer made a supplemental contribution in addition to a safe harbor, then the plan could not impose a last day/1000 hour requirement on that supplemental contribution. However, I can't find this provision in the final regulations. Does anyone know if it was intentionally removed or if it still applies?

[austin3515]

There's LOTS of plan's with 3% SH and last day/1,000 hour rules on the profit sharing. There were no rule changes prohibiting this plan design.

Sometimes they can write in a manner that is less than straightforward. That you're not finding antyhing to corroborate makes perfect sense!

[Tom Poje]

what you are referring to does not involve a SHNEC (remember, you are not using additional nonelectives to satisfy safe harbor), rather a SHMAC - you can not make an additional discretionary match and treat it as a 'safe harbor' if you impose conditions. you can always make additional matches, but like the nonelective, you will have testing involved.

it is in the regs where it says something to the effect 'if you are eligible to defer...' rather than 'if you are eligible for the match

[austin3515]

Tom -

Is this because of 1.401(m)-3(d)(4), regarding the ration of deferrals to match for HCE's compared to NHCE's?

[Tom Poje]

ultimately, yes.

to get to the point of having an ACP safe harbor, one has to pass ADP safe harbor. the cite you references words it as follows:

"an employee is taken into account ...as an eligible ee...if contributions required...by paragraphs (b) or (c ) [that is ADP safe harbor]

[chris]

Am I correct in assuming that the initial step to take if you have an additional discretionary match with 1000 hour/last day requirement would be to amend that contribution out effective 1/1/06?

[Tom Poje]

I think if you dont make a discretionary match you would be ok.

plus, there is nothing to stop you from making a discretionary match - you would just have to run an ACP test. plus no shifting of deferrals to help pass test.

I suppose at that point it works like a cross tested plan - the owners ask you how much they could get in match, and you run the numbers to see what will pass.

a cautionary note would be you simply cant say it is discretionary, and this year we will cap at 4% deferred. that would have to be in the document.