Safe Harbor and Non Safe Harbor Plan

[Dougsbpc]

This is somewhat related to another post which is a hot topic, but it may be a little different.

One employer sponsors two 401(k) Plans:

Plan A is a non safe harbor plan covering 5 owners only.

Plan B is a safe harbor plan covering the 5 owners and 10 employees. It provides the standard match safe harbor and only non-keys are entitled to the SH match.

No contributions have been made to the non safe harbor plan for 4 years (ever since the safe harbor 401(k) plan has been adopted). Also, no owner has ever made salary deferral contributions to the safe harbor plan.

One owner made salary deferral contributions to the non safe harbor plan.

On the surface, this would appear to be non-discriminatory. Non-keys and NHCEs are definitly getting better benefits than key HCEs.

1. Can plan A and plan B be aggregated for 410(b)?

2. Would the ADP test for plan A be done by aggregating plan A and plan B?

3. If the group is top heavy, is the TH minimum satisfied by all non-keys being in a safe harbor 401(k) plan?

Thanks.

[Tom Poje]

my understanding is the answer is no, based on

1.401(k)-1(b)(4)(iii)(B) last sentence says

An employer may not aggregate a plan using the ADP safe harbor provision and another plan using the ADP test.

and 1.401(a)(4)-9(a) says if 2 plans are aggreagted for coverage they must be aggregated for nondiscrim as well.

so you are trapped.

in your scenario, Plan A passes ADP because it has HCEs only

the problem is coverage (and always has been even if no one has deferred for years because you only have to be able to defer to be treated as benefiting!)

when looking at Plan A for coverage (assuming all are at least 5% owners)

you would fail because no NHCEs benefit.

That is not to say that all makes sense, but it is what they say (unless someone can point to something otherwise)