new safe harbor 401k with term'd employee

[Santo Gold]

There is a non-elective safe harbor 401k plan for a small employer, effective this year. The plan is effective back to 1/1/07, but the 401(k) portion became effective 9/1/07. We just had an employee terminate employment 9/11/07. She did not make any 401(k) contributions. I know she will get the 3% s/h contribution for her compensation for the 9/1/07 - 9/11/07 period, but should she get 3% back to 1/1/07 - 9/11/07? I do not see where that is clearly addressed in the document. Is there certain language that I should look for that would answer this?

There is a good chance the plan will be top heavy and I know that as a result, she will get 3% T/H for comp from 1/1, but that has a 3 year cliff vesting schedule (she has less than 3 YOS), so in terms of what she is actually entitled too, there is a big difference in whether she gets the s/h for the whole year.

[WDIK]

Is there certain language that I should look for that would answer this?

I would concentrate on the sections that define compensation and eligibility. I would also review the language in the safe harbor notice. (Cautionary note: Please do not let it come to QDROphile's attention that the plan language may not clearly address this topic.)

Something else that may be a factor in making this determination is the actual entry date of this participant.

[Leopurrd]

Usually I see that the Safe harbor is only effective for the partial period, simply because the safe harbor contribution allows you to pass ADP. It wouldn't make sense to contribute a safe harbor for the entire year even though you could only defer for part of it. Again, check your document.

Also, don't forget that if they only make the safe harbor contribution, that covers top heavy, so you may not need to give the participant 3% on their annual salary.

[Kevin C]

If she terminated before the end of the plan year, she doesn't get the top heavy minimum. The document should have language to that effect.

There may be reasons other than the ADP/ACP safe harbor for the plan sponsor to want to use compensation prior to 9/1/07 in determining the 3% SH contribution. Can you ask the person who drafted the document? If the 3% SH was meant to use compensation back to 1/1/07, the issue should have come up when the plan was being drafted.