Rule of Parity

[IRA]

If a plan has only a 401(k) arrangement and a safe harbor match, we know that the elective deferral is not counted for determining whether a person is vested for purposes of the rule of parity under 410(a)(5)(D). But what about the safe harbor match? Is that considered an elective deferral for this purpose or does the safe harbor match mean that the participant is vested and thus the rule of parity cannot apply for eligibilty purposes?

[Tom Poje]

my copy of the preamble to the final regs says that

...for example, elective contributions under a qualified CODA are taken into account for purposes of determining whether a participant is a nonvested participant for purposes of section 411(a)(6)(D)(iii)

[which is the section dealing with break in service rules]

see page 18, section D

[IRA]

That's vesting. I'm talking about eligibility.

[Belgarath]

I think the employee would be considered as vested for purposes of the rule of parity. See 1.401(k)-1©(1), (final regs) which differs from the prior version. Since vested, then the 411(a)(6)(D) requirement isn't satisfied, so you can't use the rule of parity.

[IRA]

The change to section 1.401(k)-1©(1) involves vesting for purposes of the rule of parity as it relates to vesting. I don't think that section says you have to treat elective deferrals as vested for purposes of the rule of parity as it relates to eligibility. See also Section 1.401(k)-1(a)(4)(ii), which says elective deferrals are treated as employer contributions for purposes of 411, but does not mention 410.

Nonetheless, I tend to agree with you. It is just that something in the back of my mind tells me that a safe harbor match is treated as an elective deferral.

[Belgarath]

I'm not quite understanding the line of thought here. In order to apply the rule of parity for eligibility purposes under IRC 410, you have to be non-vested. There's nothing in 410 that says if you are a 401(k) participant, that any vesting of a safe harbor match is disregarded. So, you go to the 401(k) regs, which give you a specific dispensation for purposes of applying 411(a)(2) only. So I just can't get to a conclusion that in your situation you could apply the rule of parity.

But I could be all wet. I'd love to hear any other opinions.

[IRA]

I'm not quite understanding the line of thought here. In order to apply the rule of parity for eligibility purposes under IRC 410, you have to be non-vested. There's nothing in 410 that says if you are a 401(k) participant, that any vesting of a safe harbor match is disregarded. So, you go to the 401(k) regs, which give you a specific dispensation for purposes of applying 411(a)(2) only. So I just can't get to a conclusion that in your situation you could apply the rule of parity.

But I could be all wet. I'd love to hear any other opinions.

I agree. But here is the bottom-line question. Assuming you do have a safe harbor match, how do you keep track of employees who terminated more than 5 years ago - say 10 or 20 years ago - and are later rehired? What is everyone doing out there?