New Comp; Safe harbor Plan - Defining alloc groups

[buckaroo]

My client has a safe harbor plan (3%NEC) with a New Comp profit sharing allocation. In the past, the client defined the allocation groups as: Owners/Officers and All Others. This year, they decided to have three allocation classes: Owners/Officers, Other Employees who made elective deferrals, all others. They will pass coverage at 100% for the P-S allocation due to the 3% SHNEC. My questions are as follows:

1) Can the plan sponsor define the allocation group dependant on whether or not the participant chose to make an elective deferral? (I think that the answer is yes, but I wanted to confirm.)

2) If they are able to define the groups in this fashion, does not matter how they pass the 401(a)(4) testing? Ratio vs. ABT? (I think that they can pass in any fashion, but wanted to double check.)

[chc93]

A quick comment... doesn't a company contribution that is dependent (conditioned) on salary deferrals become an "employer match", and then subject to 401(m) and ACP testing, and is disaggregated from discretionary nonelective contributions testing? If so, would the group that gets a company contribution dependent on having salary deferrals get tested as $0 in the 401a4 test? Maybe a reasonable result in this case?

[ETA Consulting LLC]

A quick comment... doesn't a company contribution that is dependent (conditioned) on salary deferrals become an "employer match", and then subject to 401(m) and ACP testing, and is disaggregated from discretionary nonelective contributions testing? If so, would the group that gets a company contribution dependent on having salary deferrals get tested as $0 in the 401a4 test? Maybe a reasonable result in this case?

Well, the contingent deferral rule, I believe it's Section 401(k)(4), states that an Employer Match is the only contribution that may be made based on an employee's deferral. So, if you give a nonelective based on who defers, you either have a matching contribution or a disqualifying event.

Good Luck!