Safe Harbor contribution and eligibility

[Guest EPS2]

I'm confused.

For a safe harbor 401(k) Plan: SH contribution is basic match

Eligibility requirements for salary deferrals is three months, but for the safe harbor match eligibilty is one year of service.

This would mean that there would be salary deferrals that would not be matched with SH contributions for a new participant that entered the salary deferral portion of the plan mid year. I thought any and all salary deferrals had to be matched if the SH contribution is to be matching contribuitons.

When filling out the checklist for a new SH plan, don't you have to make sure that the salary deferral eligibility requirements and entry date is the same as for the SH match so that all salary deferrals get matched?

[Tom Poje]

Instead of being confused, read Notice 2000-3, in particular Q-10

http://benefitslink.com/IRS/notice2000-3.html

(by the way, if a plan is operated this way, the 'top-heavy free' option does not apply - you have to provide if plan is indeed top heavy)

[Guest EPS2]

Instead of being confused, read Notice 2000-3, in particular Q-10

http://benefitslink.com/IRS/notice2000-3.html

(by the way, if a plan is operated this way, the 'top-heavy free' option does not apply - you have to provide if plan is indeed top heavy)

Thank you. That's exactly what I needed. So, just so that I totally understand:

A plan can have 3 month wait for salary deferrals and a one year wait for SH basic match, but if it does, it must test 410(b) for those that don't get the SH match separately (for all purposes: 401(a), 401k and 401m). Test will probably pass because the probability of having a HCE in the group with less that a year is slim.

Also, the ADP and ACP test must be separately done: one test for those that met the 3 month requirement (have not met the one year of service), and another test for those that met the one year requirement. Again, the test will probably pass because of no HCE's in the 3 month eligibility group.

I went to a Corbel seminar, and remember them saying that if someone deferred, they HAD to receive a match. I must have missed this part.

Top Heavy...wow...didn't know that either. So, say that in the first plan year, no one deferred anything, but the employer did put in a profit sharing contribution for that first year. The plan is also a new comparability plan, so it will be top heavy in its first year of operation, and in the next year since the rank and file only got 5%, while the the HCE's got 20%. Since this plan will have deferrals that are not matched with the basic SH match, it will always be considered a top heavy plan, and will have to provide a top heavy minimum. Seems to me that the employer should just put in a non-elective SH contribution.

Am I understanding this all?

Thank you so much!

[Tom Poje]

your statements sound correct across the board. 10 points. you may now continue the rest of the examination.

[Guest EPS2]

Okay...so I just re-read my post. I think I wrote this part wrong because it doesn't make sense if we're talking about a safe harbor plan:

"Also, the ADP and ACP test must be separately done: one test for those that met the 3 month requirement (have not met the one year of service), and another test for those that met the one year requirement.

So, if the plan is considered a safe harbor plan, the participants with less than a year of service do not get a safe harbor basic match, to keep the safe harbor provision, they must be tested separately under 410(b), ADP/ACP - For those that have met the year of service requirement have to be tested separately under 410(b), AND ADP/ACP? I mean, then whats the point of the safe harbor?

Should I have written: Those that did not meet the the year of service eligibility requirement (the participants that did not get the safe harbor basic match) have to be tested under 410(b) and ADP/ACP. We would have to test those that did meet the one year requirement under 410(b) separately, but not ADP/ACP because the plan is operating under the safe harbor rules.

Thanks for helping me on this ... I feel like I'm beating a dead horse

[Tom Poje]

if you choose to test 'otherwise excludables' separately, then you have '2 plans'

one for those who have met the one year eligibility. there is no test because that plan is safe harbor.

then you have a test for the otherwise excludables. it is not safe harbor so testing is required, but unless there is an owner in the group, it would be almost impossible to have an HCE, so that would pass testing.

yes, you would also have to test each 'plan' for 410(b), though again the same argument applies - it would be almost impossible to fail.

the only thing you have given up is the 'top heavy free' card by testing separately.

[BG5150]

What if the safe harbor is the 3% non-elective?

Do I have to do an ADP test for those who are otherwise excludable?

Plus, no Top Heavy pass, right?  (I'm not worried about this, as there is a PS this year, so I still have to run that test.)

[Tom Poje]

that is my understanding, you have '2 plans'

one meets safe harbor so no testing.

the second plan (for those with less than one year) is not safe harbor so testing is required.

most likely there are no HCEs. but plan is also subject to top heavy so all the non key might have to get 3%, which means you haven't accomplished anything (except top heavy is 3% of the whole year not from date of participation as would apply if plan was safe harbor only)