SH and Dual Eligibilty for Dummies

[Guest bariww]

Please help!

I am aware that a Safe Harbor plan may allow for dual eligibility for salary deferrals and the SH match, however I need some plain english clarification on what that really means to the plan, how that changes the testing, and any potential issues or concerns that could arise and should be discussed prior to adoption of the provision. The plan is considering going back to SH for 2009 and adopting either immediate or 3 month salary deferral eligibility with 1 year eligibility for the match. In addition to that, the plan is considering adopting QACA with the same eligibility requirements mentioned above. Can someone please help me with this? Thanks in advance.

[JanetM]

Keep it simple. The testing part is split out by money type - pre tax, after tax, match, safe harbor, profit sharing. Coverage test for deferrals are tested such that if you are eligible - even if you don't make any - meaning if you have immediate entry you always have 100% coverage. For the other types - you can exclude those under 21 with less than year of service. If plan is SH you get free pass on ADP (and ACP if you don't allow after tax contributions)

[Tom Poje]

if plan is top heavy, you lose your 'get out of top heavy for free' card if you use the otherwise excludable option.

the advantage of the QACA is that you can use a 2 year cliff vesting for the safe harbor.

therefore, it would seem to me to make more sense to provide the safe harbor to all, since there is no top heavy. you save on the fact the 3% is only provided on comp from date of entry. (or if you go with the match non deferring ees get the big fat zero.

[Guest bariww]

So am I right to say that if the plan is not top heavy, then there is no additional testing that the plan must perform and pass on its own w/out the automatic SH pass, but if the plan is top heavy, then it must be able to pass non-discrimination testing?

It seems to me that having a SH plan with dual eligibility provisions like I mentioned above is somewhat counterintuitive to the concept of SH in general. Doesn't that essentially allow owners to have their cake and eat it to?

[pmacduff]

No - if the plan is top heavy you still get your pass on the ADP testing but the client will have to make a top heavy contribution for those who qualify. Depending on the demographic, the $$ could add up.