Safe Harbor Plans

[Guest zora]

Do all employees in a controlled group have to be eligible for a 401(k) plan in order for the 401(k) plan to meet the safe harbor matching contribution rules? Assume, for example, that you have Corp. X and Corp. Y in a controlled group. Assume Corp. X sponsors a 401(k) plan. Assume further that the plan satisfies Code Section 410(b) even if no employees of Corp. Y participate in the plan.

Now, assume X wants the plan to be a safe harbor matching contribution plan. Is that possible without letting Y employees make elective deferrals? Note that Treas. Reg. Section 1.401(k)-3©(6) says the plan cannot restrict "elective contributions by NHCEs" and does not say the plan cannot restrict "elective contributions by eligible NHCEs". The terms "eligible NHCEs" and "NHCEs" are two different terms.

Yet I thought not all employees in the controlled group had to participate, as long as the plan met 410(b).