Safe Harbor - Eligible Employees

[Guest tintree73]

Employer with several employment classifications has a safe harbor 401(k) plan (matching) which excludes non-resident aliens, etc.; however, they also exclude one classification of employees (otherwise common law employees of the employer) - let's call them traveling salespersons. Is this allowed - and can they retain safe harbor status by excluding the traveling salespersons?

I'm looking at IRS Notice 98-52 (especially example 4) and 1.401(k)-3(b) and © and I can't find out if this is permissible. I did notice that the fourth example in the Notice does speak of two divisions (D and E - which I assume means there are other divisions A, B and C); however, it also says that there are no other plans.

If they are not allowed to exclude these employees - doesn't it mean that either (1) they failed to follow the terms of the plan, (2) the plan loses the safe-harbor pass for ADP and ACP testing or (3) both?

Or would the question come down to whether they can pass 410(b) - and the safe harbor aspect of the plan has nothing to do with it at all (as long as you can pass the RPT, ABT, etc.).

Any thoughts would truly be appreciated!

[Belgarath]

I believe they can be excluded - subject to normal coverage testing, of course.

[austin3515]

They can definitely be excluded. A safe harbor plan is just another qualified plan with a special feature. No part of the SH rules require that all employees of the controlled group should be covered. Dictating minimum participation requirements is the job of 410(b) alone for a qualified plan.

[Guest tintree73]

Thank you sooooo much for your replies. Got it! One side-question - does that mean that an employer who sponsors a safe harbor plan could also take advantage of the separate line of business rules as applicable to 410(b) testing for the traveling salespersons (e.g., file the QSLOB notice, exclude them, etc.) in order to pass 410(b) coverage? I know a SH plan cannot have a last day of service requirement or a 1000 hour requirement - but I wasn't sure if they could take advantage of the QSLOB rules or not. Many thanks!