Safe Harbor Contributions & Excludable Participants

[Guest M. Martin]

I have two different Safe Harbor scenarios for plans that have short 401(k) eligibility requirements that elected to exclude participants who are not age 21 and have less than one year of service.

One plan is on a prototype and the other on an IDP, neither document clearly defines exactly when these first year participants should enter the plan for purposes of receiving a safe harbor contribution.

Plan 1 is on a prototype - 90 days of service is required to become eligible for salary deferrals and regular matching contributions with immediate entry upon satisfaction of the service requirement. For profit sharing contributions an employee must have a year of service and attain age 21 with entry dates being semi-annual as of 1/1 & 7/1.

For purposes of receiving the Basic Safe Harbor Matching contribution the plan excludes Employees who have not satisfied the greatest minimum age and service conditions permitted under Code Section 410(a)

For an employee who was hired in September 2006 would they become eligible and enter immediately upon completion of 1 year of service or are they not be eligible for the safe harbor match until the following January under the maximum age/service and dual entry provisions?

Plan 2 is on an IDP 3 months of service and age 18 is required to become eligible for the 401(k), regular match and profit sharing portions with quarterly entry dates.

This company makes a 3% Safe Harbor Contribution and their document stipulates that a Safe Harbor Participant will only include those Participants who have reached Age 21 and completed 1 Year of Service.

Under this definition would a participant become eligible immediate upon completing their year of service, i.e. hire date 8/23/06 eligibility met 8/22/07, or would they enter at the later quarterly plan entry date of 10/01/07?

For both cases, the correct entry date is important because this will also impact the amount of eligible compensation that should be considered since pre-date of entry comp. is excluded.

[Mike Preston]

I think this issue has been dealt with before on these message boards. If recollection serves the bottom line is that you have a document or two where a decision has to be made by the Plan Administrator as to how it is to be interpreted, because there is an ambiguity. As long as the decision is made in a non-discriminatory manner, in a manner that is not arbitrary and is not contrary to ERISA you should be fine.

For your IDP it would probably be a good idea to have whatever is decided actually put into the plan. For the prototype, you just can't do that, of course.

For both, consultation with an ERISA attorney will go a long way towards ensuring that the Plan Sponsor has done their part.

[rcline46]

Call the document provider and ask them what the entry date is under the provisions cited.

[Guest M. Martin]

For both document types we'll clarify when they are restated but for now the Plan Administrators are providing written directions on what entry dates should be used.

For the prototype the response was that there are conflicting thoughts on whether the maximum permissible dates under 410(a) or the plan entry dates should be used. But agree since the plan document is silent the Plan Administrator should make the determination as long as it is made in a non-discriminatory, consistent manner.

To be on the safe side we are also going to communicate the Plan Administrators' decisions in the safe harbor notices.