One company, two plans

[Guest Iwonder]

Company wants to sponsor 2 separate 401(k) Plans.

Plan A is for the hourly employees. This will be a safe harbor plan.

Plan B is for salaried. This is not a safe harbor plan. It's match will be higher than safe-harbor plan levels.

Plan B has a large number of HCEs. Plan A has few (if any) HCEs.

Any suggestions or warnings would be appreciated. Thank you.

[david rigby]

410(b)

401(a)(4)

dual audit requirements?

[John Feldt ERPA CPC QPA]

Watch out for the HCE matching rate. You can't have an HCE eligible for a greater matching rate than NHCEs would be eligible for.

§1.401(m)-3(d)(4) Limitation on rate of match. --A plan meets the requirements of this section only if the ratio of matching contributions on behalf of an HCE to that HCE's elective deferrals or employee contributions (or the sum of elective deferrals and employee contributions) for that plan year is no greater than the ratio of matching contributions to elective deferrals or employee contributions (or the sum of elective deferrals and employee contributions) that would apply with respect to any NHCE for whom the elective deferrals or employee contributions (or the sum of elective deferrals and employee contributions) are the same percentage of safe harbor compensation. An employee is taken into account for purposes of this paragraph (d)(4) if the employee is an eligible employee under the cash or deferred arrangement with respect to which the contributions required by paragraph (b) or © of this section are being made for a plan year. A plan will not fail to satisfy this paragraph (d)(4) merely because the plan provides that matching contributions will be made separately with respect to each payroll period (or with respect to all payroll periods ending with or within each month or quarter of a plan year) taken into account under the plan for the plan year, provided that matching contributions with respect to any elective deferrals or employee contributions made during a plan year quarter are contributed to the plan by the last day of the immediately following plan year quarter.

(5) HCEs participating in multiple plans. --The rules of section 401(m)(2)(B) and §1.401(m)-2(a)(3)(ii) apply for purposes of determining the rate of matching contributions under paragraph (d)(4) of this section. However, a plan will not fail to satisfy the safe harbor matching contribution requirements of this section merely because an HCE participates during the plan year in more than one plan that provides for matching contributions, provided that --

(i) The HCE is not simultaneously an eligible employee under two plans that provide for matching contributions maintained by an employer for a plan year; and

(ii) The period used to determine compensation for purposes of determining matching contributions under each such plan is limited to periods when the HCE participated in the plan.