Safe Harbor Plan

[Guest Pension Girl]

I have a safe harbor plan with a SHNEC for a clinic that excludes the employees of the hospital, which is a related employer ie they are a controlled group. The hospital has a profit sharing plan, which is not safe harbor. The clinic plan is failing coverage due to all the NHCE's in the hospital. RPT is like 50%. What happens in this scenario when one plan is a safe harbor and the other is not? Can you aggregate them for coverage, or does the safe harbor plan always have to pass on its own? Forget coverage testing for deferrals because the hospital has a 403b plan and so the clinic 401k plan can exclude the 403b plan from coverage for purposes of the 401k feature (1.410-b)6)(g))

Can the safe harbor plan be amended to include additional NHCE's from the hospital plan so that it passes RPT? I think it would need to be amended this year, or the entire safe harbor is blown and you would have to do a VCP filing?

Does anyone have experience with this?

[Tom Poje]

if I understand your question (which is sometimes a big IF in my case)

the regs are clear you can't aggregate a safe harbor with a non safe harbor for ADP testing.

since you have to treat plans the same for coverage as you do for discrim testing that would seem to eliminate aggregating them for coverage.

you indicated a ratio % of around 50%.

you did not indicate what the avg ben % was. if greater than 70% then you still might pass coverage if ratio % > safe harbor%.

depending on how bad (or good) the avg ben % test is, you might be able to increase the avg ben % test not by bringing more people in, but by providing QNECs under the corrective amendment process.

[Guest Pension Girl]

if I understand your question (which is sometimes a big IF in my case)

the regs are clear you can't aggregate a safe harbor with a non safe harbor for ADP testing.

since you have to treat plans the same for coverage as you do for discrim testing that would seem to eliminate aggregating them for coverage.

you indicated a ratio % of around 50%.

you did not indicate what the avg ben % was. if greater than 70% then you still might pass coverage if ratio % > safe harbor%.

depending on how bad (or good) the avg ben % test is, you might be able to increase the avg ben % test not by bringing more people in, but by providing QNECs under the corrective amendment process.

Yes I was thinking of the ABT but do not have enough data to compute it - I have no idea if the hospital plan is going to make a ps contribution and if the clinic plan will make additional discretionary ps. But, if I understand what you are saying, forget any other contributions anyways, because the employer could make QNEC's to the rank and file in the clinic plan to boost their average(without bringing in employees from the other plan) up to the point necessary to pass the average benefits test. The safe harbor % will be around 27.5% since the NHCE concentration is 90.5% so the nondiscriminatory class. test will be no problem. Does this sound plausible?

What if the safe harbor nonelective only went to NHCE's, then no problem correct?

Thanks!!

[Tom Poje]

I think I stand (or sit) corrected. looking up the actually wording in the regs, I see that under 1.401(a)(4)-11(g)(6)(vii) it says for 401(k) plans QNECs under a 'corrective amendment' can only be given to NHCEs who were not eligible for a given plan year. If you are also failing a(4) coverage then you could provide an additional QNEC to the rank and file and the side effect would be passing the avg ben % test, which in turn would help pass the 401(k) coverage

remember, the safe harbor nonelective is still a nonelective, so is treated as such for coverage. it doesn't help the 401k portion of the coverage if it only goes to NHCEs. however, if HCES didn't receive then it would make it easier to pass the avg ben % test.

[Guest Pension Girl]

I do not think (g)(v) is applicable, as my question involves a coverage issue under 410(b) and the safe harbor nonelective contribution is not a BRF. Per 11(g)(2), it clearly states that to pass coverage a corrective amendment may increase accruals or allocations for employees who are already benefiting OR who did not benefit. I am only concerned about the nonelective portion not the 401k portion. I can exclude from 401k coverage testing the hospital group under 1.410(b)-6(g)(3) the 403b exception.