Coverage - Employer Contributions

[Guest SWadd]

If a plan design offers both a safe harbor nonelective contribution and a profit sharing contribution, are both (either or) contribuitons counted when determing if an employee is benefitting under the disaggregated non 401k non 401m coverage test? Logic would tell me no - the safe harbor eligibility is tied to deferral and has no allocation requirements. The profit sharing has a 1,000 hour last day rule. However, the ERISA Outline Book seems to indicate that any nonelective contribution received (including SH nonelective) can be used to satisfy this coverage test.

For example, if employee A received the SH contribution but not the profit sharing due to terminating during the year, this employee would deem to benefitting under the disaggregated "employer" coverage test. Is this correct?

[Tom Poje]

think of the names of the contributions.

profit Sharing is considered a Non-elective contribution.

A safe harbor is a non-elective contribution

so when you test coverage for non-electives, you count either one a person benefits under.

now, if a person receives safe harbor and no profit sharing you have the following:

NHCE 1 3% safe harbor

NHCE 2 3% safe harbor, 2% profit sharing

both are includable and benefiting for coverage for the nonelective protion of coverage testing.

Nondiscrimination is a different issue. one person received 3%, and another received 5%.

This might cause nondiscrimination to fail, but not coverage.

[Guest SWadd]

Thanks Tom.

Just seems like faulty logic to me (the regs not your response) - a plan could have a safe harbor/profit sharing design, just contribute the safe harbor to the NHCE's, give both to the HCE's and pass coverage. I understand their could potentially be an 401(a)(4) issue...but still...

[Guest Sieve]

That's the whole point. For 410(b) purposes, non-discrimination is not an issue. You can combine a discretionary PSP (with a 1% contribution for the year) with a 25% MPPP in order to pass coverage. But, you'd then have to pass 401(a)(4) on a combined basis, and therein lies the problem.