Safe Harbor 401(k) and DB Plan

[Dougsbpc]

Suppose a company sponsors a DB plan and a safe harbor 401(k). They have and always will make safe harbor nonelective contributions in the 401(k). Suppose they want to make the DB plan a floor offset plan. Could they use the SHNE contributions for the offset? In reality it would be 3% SHNE contributions and a 4.5% profit sharing contribution. If this is possible, would both plans need to provide 100% vesting immediately?

[AndyH]

Suppose a company sponsors a DB plan and a safe harbor 401(k). They have and always will make safe harbor nonelective contributions in the 401(k). Suppose they want to make the DB plan a floor offset plan. Could they use the SHNE contributions for the offset? In reality it would be 3% SHNE contributions and a 4.5% profit sharing contribution. If this is possible, would both plans need to provide 100% vesting immediately?

Sure you could do it (and you may not need to go to 7.5%). Why would you need 100% vesting?

[Andy the Actuary]

As part of the floor-offset arrangement, I believe the 401(k) plan would have to provide what one my clients refered to as "the spouse's sxxx" That is, the J&S stuff would apply as the automatic form of payment and generally would require witnessed spousal consent to waive.

[Dougsbpc]

Andy(s)

Thanks for the replies.

We are aware of the J&S automatic form of benefit payment.

Regarding vesting, my understanding was that vesting needs to be identical in both plans. Perhaps my understanding is incorrect.

In any event, if 3.5% was 100% vested as a requirement of being SH and the DB had a 6 year schedule you would be offsetting DB benefits by a DC balance with a greater rate of vesting than the DB benefit is subject to.

When it comes to floor-offset plans we are trying to be as plain vanilla as possible (J & S in both plans, same eligibility, same vesting, same NRA and uniform allocations to all in the DC plan). I know identical J & S, NRA, and uniform allocations in the DC plan are a must. Not completely sure about vesting and eligibility.

[AndyH]

I agree there would be a BRF testing issue but normally the DB would be the more HCE-heavy, so to fully vest that due to the SHNEC that presumably benefits more NHCEs could most likely be avoided.

But if you want it as simple as possible ...