Safe Harbor cont & half year comp

[Guest DazedAndConfused]

I have a SHNC 401(k)plan where there are 2 entry dates and compensation prior to plan participatin is excluded, according to the plan document. When giving the SH 3% contribution, can I exclude compensation prior to participation? The plan is top-heavy so I was assuming the 3% had to be over the entire year but I was told that this may not be correct.

Assuming I can give the SH3% on the half year comp, if I do a NC allocation then, do I need to make up the difference to bring the cont to a full year 3% first before doing the NC allocation?

Hope this all makes sense. Thanks!

[Tom Poje]

the second part of your question is easy - if there are any other contributions besides the safe harbor then you will have to make sure top heavy is met.

the first part of your question is gray.

last years ASPPA conference an IRS representative said if there are no other contributions besides safe harbor, the plan gets a free ride on top heavy - even if comp is based on date of participation.

this year's Western Benefits conference the IRS representative indicated top heavy would have to be provided (basically because no contribution meeting the ACP safe harbor was made - so no free ride on top heavy)

the agent did indicate that clarification would be forth coming, but no timetable was given.

[Leopurrd]

I'm a little confused on your post. What do the 2 entry dates correspond to? the deferrals and the non-elective?

Your document would tell you what comp to use for plan purposes. If you are not exempt from the top heavy rules, and your doc excludes pre-participation comp, you are correct in thinking your top heavy would be based on full year. Technically speaking, half the 3% would be 100% vested and subject to withdrawal restrictions (safe harbor contrib) and the other half would be on the top heavy vesting schedule (add'l $ to get to the top heavy limit).

keep in mind that if your plan consists of deferrals and safe harbor only, you are exempt from the top heavy rules.

also, with your 2 entry dates, you may need to run ADP testing on your excludible employees (which should always pass unless you have a new owner).

HTH,

Vicki

[Guest DazedAndConfused]

I'm a little confused on your post. What do the 2 entry dates correspond to? the deferrals and the non-elective?

Your document would tell you what comp to use for plan purposes. If you are not exempt from the top heavy rules, and your doc excludes pre-participation comp, you are correct in thinking your top heavy would be based on full year. Technically speaking, half the 3% would be 100% vested and subject to withdrawal restrictions (safe harbor contrib) and the other half would be on the top heavy vesting schedule (add'l $ to get to the top heavy limit).

keep in mind that if your plan consists of deferrals and safe harbor only, you are exempt from the top heavy rules.

also, with your 2 entry dates, you may need to run ADP testing on your excludible employees (which should always pass unless you have a new owner).

HTH,

Vicki

The plan document excludes comp prior to plan participation. There are two entry dates. Jan 1 Jul 1. My question is: should Safe Harbor comp be based on full year (like TH) or half year (as per the document). I have been looking & I do not see anything that separates this issue. I keep seeing Safe Harbor Compensation but nothing defining it. Thanks

[Leopurrd]

Sorry! I was reading WAY too much into the post. I took it as a different entry for each source!

Since your doc says exclude comp prior to participation, your SH contribution would be based on comp from 7/1 to 12/31 for those who enter the plan on 7/1.

please see my prior post for top heavy issues....

Vicki

[Tom Poje]

but if other contributions are made, then top heavy would have to be provided on full year comp (though that portion would not have to be 100% vested)

[Guest DazedAndConfused]

Thanks!