Safe Harbor and Otherwise Excludable

[PMC]

Safe Harbor Plan - 3% nonelective. Calendar year/plan year. Eligibility is 21 and 2 months for making deferrals while age 21 and 1 year of service for SHNEC. Monthly entry dates. Designate as separate plans and use the otherwise excludable rule and will have to ADP test the excludable group. How long is an "excludable eligible 'EE included in the testing group? (I understand the top heavy consideration too.)

For example - 'EE hired 2-1-10 and enters the Plan 4-1-10 for purposes of making deferrals. Eligible to receive SHNEC effective 2-1-11(one year of service). SHNEC is based on compensation from time eligible to participate in SHNEC. Would this 'EE be included in the 2011 ADP test since they were eligible to make deferrals but didn't receive the SHNEC for part of the plan year (for 1 month's compensation)? If so, would they be tested based one month's (January 2011) compensation?

Am I correct to assume if the SHNEC was based on the entire plan year's compensation (2011) this person wouldn't be included in the 2011 ADP because they would have received a SHNEC for their compensation for the entire plan year?

[cpc0506]

Safe Harbor Plan - 3% nonelective. Calendar year/plan year. Eligibility is 21 and 2 months for making deferrals while age 21 and 1 year of service for SHNEC. Monthly entry dates. Designate as separate plans and use the otherwise excludable rule and will have to ADP test the excludable group. How long is an "excludable eligible 'EE included in the testing group? (I understand the top heavy consideration too.)

For example - 'EE hired 2-1-10 and enters the Plan 4-1-10 for purposes of making deferrals. Eligible to receive SHNEC effective 2-1-11(one year of service). SHNEC is based on compensation from time eligible to participate in SHNEC. Would this 'EE be included in the 2011 ADP test since they were eligible to make deferrals but didn't receive the SHNEC for part of the plan year (for 1 month's compensation)? If so, would they be tested based one month's (January 2011) compensation?

Am I correct to assume if the SHNEC was based on the entire plan year's compensation (2011) this person wouldn't be included in the 2011 ADP because they would have received a SHNEC for their compensation for the entire plan year?

SH Plan does not need an ADP Test. That being said, my thought is that an employee is no longer 'otherwise excludable' as soon as they have met the IRS minimum requirements - that is 21 and one year of service with semi-annual entry dates. So your employee with hire date of 2-1-10 would no longer be 'otherwise excludable' as of 7/1/2011, so should be in the 'not otherwise excludable test' at the of the 2011 plan year.

[DMcGovern]

Any disaggregated portion of the plan that is covered by the safe harbor provisions would be exempt from ADP testing, but the portion that is not covered by SH would have to be ADP tested. In most cases this testing group does not include any HCEs, and automatically passes.

[PMC]

Thanks for the comments but an individual could easily be a HCE under the scenario above. Hired 2-1-10 but doesn't become eligible for the safe harbor match until 2-1-11. His look back year is 2010 and could have comp. in excess of $110k and therefore be treated as a HCEE for 2011. Is this person required to be included in the ADP for 2011 and what comp is used?

[DMcGovern]

In 2010 the participant would be otherwise excludable, most likely not a HCE and would be in the ADP test group. In 2011 the participant would have satisfied the statutory eligibility requirements and is in the group covered by SH, so not subject to ADP testing. HCE/NHCE in 2011 would not be an issue since not in the testing group - only those in 2011 not covered by the SH

[PMC]

2010 not an But this individual wouldn't be receiving a safe harbor contribution for the entire plan year in which he was eligible to make deferrals, only a portion of it. Doesn't that make a difference?

[DMcGovern]

2010 not an But this individual wouldn't be receiving a safe harbor contribution for the entire plan year in which he was eligible to make deferrals, only a portion of it. Doesn't that make a difference?

The safe harbor contribution may be calculated based on compensation from date of eligibility. It still meets the safe harbor requirement for the plan year, so that participant is considered covered by the SH. You may have an issue with meeting top heavy requirements on these participants, if that is applicable.