Different eligibility for deferrals and safe harbor match

[commishvp]

A 401(k) plan wants to add safe harbor match for 2006. The current eligibility for deferrals is 3 months, they would like to have the eligibility at 1 year for the safe harbor match.

Transamerica is telling the client that the entire population of employees must be ACP tested if there are different eligibility requirements for deferrals and safe harbor.

My thoughts are you would ADP/ACP test the otherwise excludable group who does not receive the safe harbor match. This would always pass since no HCE's would be in the OE group.

Top heavy will never be an issue.

Thoughts?

[austin3515]

You've got a better chance at complying with the law if you do the opposite of TransAmerica says.

You're on the money.

Sounds like you're aware too that your top heavy exemption is blown in the plan design you're describing.

[Guest Lawrenceg]

A 401(k) plan wants to add safe harbor match for 2006. The current eligibility for deferrals is 3 months, they would like to have the eligibility at 1 year for the safe harbor match.

Transamerica is telling the client that the entire population of employees must be ACP tested if there are different eligibility requirements for deferrals and safe harbor.

My thoughts are you would ADP/ACP test the otherwise excludable group who does not receive the safe harbor match. This would always pass since no HCE's would be in the OE group.

Top heavy will never be an issue.

Thoughts?

Be careful that no new Keys are hired that defer. I had a similar situation and a new CFO was hired at $250,00/ yr making the otherwise excludable group top heavy if he deferred. The company bonused out his first year deferrals and so he didn't defer thus averting a TH situation.