Sanity check - Would this work as a Safe Harbor?

[Guest fender5150]

I'm designing a plan for a Consulting firm. Their goal is to encourage mid-term longevity. They'd like to keep good people for at least 2 to 5 years.

Here's the thought:

Allow immediate participation. Immediate rollovers for NON-HCE's.

Employees become eligable for a NEC on the 1st day of the year after one year of service.

3% NEC guaranteed. Discretionary contributions based on profit and / or the 'employer's whim'.

Immediate vesting for the 3% NEC and discretionary constributions.

My thinking is: This is a safe-harbor plan that still be subject to top-heavy testing. Is this a correct assumption?

Thanks,

Fender

[John Feldt ERPA CPC QPA]

For the plan to be Safe Harbor (and if you want to avoid all ADP testing), then all employees who are eligible to defer must receive the safe harbor contribution.

If you want to test the statutorily excludables in the "otherwise excludable" (OE) group, then I think you have to do the 21/1 age/service. So I think making employees wait until the first day of the next plan year (to be eligible for the SH nonelective) becomes a problem, and neither group could truly be considered as having Safe Harbor plan.

If you change the SH nonelective so it starts no later than the 21/1 cutoffs for eligibility, then you could test the OE groups as follows:

1. One group is the Safe Harbor plan (they are over age 21/1) - they all get Safe Harbor, no ADP test.
   
2. The other group is under 21/1 and that plan is not Safe Harbor, so test ADP for that group.
   

I think each group above must pass coverage to be able to use the OE grouping like that.

[Guest fender5150]

Thanks. That makes sense:

The permissive disagregation rule isn't satisfied if the NEC doesn't till the first date of the plan year after one year? Can you not use permissive disagregation for up to 2 years now?

[pmacduff]

I didn't see where J4FKBC answered re: top heavy - ... if you have an eligibility wait on the safe harbor piece, the plan is subject to the top heavy rules. You must give the safe harbor immediately (upon eligibility to defer) to be exempt from top heavy.

Also, if there are ANY employer non-elective contributions (including forfeitures reallocated), top heavy is back in play as well. The plan must consist soley of 401(k) contributions and safe harbor to be exempt from TH.

my 2 cents...

[John Feldt ERPA CPC QPA]

Oversight, my bad. - thanks pmacduff, that's right.

[BG5150]

The plan must consist soley of 401(k) contributions and safe harbor to be exempt from TH.

Just to clarify: It is only the period for which you are considering in which there can be no other ER contributions. That is, older PS money or forfeitures or match are okay to be IN the plan, but not made for the year you want the exemption.

And why not statutory entry dates? At most you are talking about someone coming in six months earlier.

As always, see what the document says. (Or is this an IDP?)

And why not immediate rollovers for HCE's? Most places love to get assets, especially the usually larger rollovers from HCE's. Perhaps with bigger avg account balances, the client would be able to get better pricing.