Safe Harbor Nonelective in Integrated Plan

[Guest JL]

Everyone is in agreement that the 3% of pay safe harbor non-elective contribution can pull triple duty: (1) be applied to Section 416 minimum required allocation for top heavy plans, (2) avoid ADP 401(k) non-discrimination test, and (3)be used for 401(a)(4) non-discrimination testing (popularly used in cross testing on a benefits basis).

Everyone also agrees that the non-elective CANNOT pull a 4th duty: Be used as the first 3% of pay base tier in the integrated PSP allocation formula because Notice 98-52 precludes its usage towards 401(l).

Question: If one is willing to do general testing to pass 401(a)(4) rather than rely on the 401(l) safe harbor, the "PSP" allocation (including the non-elective) is not discriminatory if it passes one of six (a)(4) methods: Two on a contributions basis (w/o permitted disparity and with) and four on a benefits basis (annual w & w/o PD or accrued to date w & w/o PD).

Could I use the 3% non-elective in my first base tier of the "traditional" integrated PSP formula if the plan passes 1.401(a)(4)-2©(2)(iv) [the annual contribution basis with permitted disparity method] for the year? Only the HCE would get the next tier of the integration formula (3% of excess pay). The HCE's are younger than the NHCE's, so cross testing on a benefits basis doesn't work.

It probably doesn't pass the smell test, but what does everyone think? Your comments would be very much appreciated!