ADP Testing And Safe Harbor Plan

[Guest LSU1990]

When a company has both a safe harbor 401(k), using employer match option, and non-safe-harbor 401(k), for ADP testing of non-safe harbor plan, are the NHCEs in safe-harbor plan included using the amounts deferred in the safe harbor plan or are the safe harbor employees excluded? Thanks in advance for comments.

[Tom Poje]

if I understand your question correctly you have 2 plans

1 safe harbor

1 401k

if true, there is no requirement to aggregate the plans. in fact, if you did you would lose the safe harbor status, so I am assuming you are not aggregating the plans.

if an HCE is participating in more than one plan, then you have to use total deferrals in both plans. There is no similar rule for combining NHCEs numbers.

now comes the fun part.

the preamble to the proposed regs (not the final 401k regs) contained the following explanation

A plan using the safe harbor method must also comply with certain

other requirements. Among these is the requirement in section

401(k)(12)(B)(ii) that provides that the rate of matching contribution

for any elective contribution on the part of any HCE cannot exceed the

rate of matching contribution that would apply to any NHCE with the

same rate of elective contribution. Notice 98-52 advised that the

general rules on aggregating contributions for HCEs eligible under more

than one CODA would apply for this purpose. The IRS and Treasury have

determined that such aggregation is not applicable under the ADP safe

harbor. Accordingly, these proposed regulations would not require that

elective or matching contributions on behalf of an HCE who is eligible

to participate in more than one plan of the same employer be aggregated

for purposes of the requirement of section 401(k)(12)(B)(ii). Thus, the

rate of match for purposes of determining whether an HCE has a higher

matching rate is based only on matching contributions with respect to

elective contributions under the safe harbor plan. However, for an

employer that uses the safe harbor method of satisfying the ACP test,

the rule in Notice 98-52 is retained for applying the ACP safe harbor,

with an exception for nonsimultaneous participation (as discussed in

connection with the ACP safe harbor below).

so if the HCE particiaptes in both plans, (and assuming you are not permissively aggregating the plans) then adp safe harbor is safe, but acp safeharbor will probably fail due to rate of match. as noted, if HCE does not participate in both then the ACP safe harbor is safe.