Senior Moment

[thepensionmaven]

We currently administer a combination 401(K)/safe harbor non-elective/profit sharing plan, the eligibility is the same for each plan component; age 21 with 12 months of service.

Client is thinking of amending the plan to allow for more rapid entry into the elective deferral portion only.

If my memory serves me correctly, we have to test each component separately as to participation and BRfs;

as well, wouldn't anyone who comes in to the 401K) portion have to get the 3% nonelective SH contribution?

[Tom Poje]

no. but if you toss in a 1 year wait for safe harbor then you lose you "get out of top heavy free" card.

[Trekker]

I believe you must run the ADP for the employees who defer but are not yet eligible for the PSP (which includes the 3% safe harbor). However, since most of these employees are Non-HCE, should not be a problem.

[thepensionmaven]

Tom,

Not quite sure what you mean with this

" no. but if you toss in a 1 year wait for safe harbor then you lose you "get out of top heavy free" card."

I would think the 3% safe harbor would have to be given to all the NHCEs who are or would be eligible to defer, if the eligibility were lowered for the 401K portion.

[K2retire]

What the top heavy comment is saying is that when you don't give the otherwise excludables a 3% safe harbor, you may end up having to give them a 3% top heavy minimum instead.

[Kevin C]

The plan design you are asking about is mentioned in the safe harbor regs.

1.401(k)-3(h)(3)Early participation rules.—

Section 401(k)(3)(F) and §1.401(k)-2(a)(1)(iii)(A), which provide an alternative nondiscrimination rule for certain plans that provide for early participation, do not apply for purposes of section 401(k)(12), section 401(k)(13), and this section. Thus, a plan is not treated as satisfying this section with respect to the eligible employees who have not completed the minimum age and service requirements of section 410(a)(1)(A) unless the plan satisfies the requirements of this section with respect to such eligible employees. However, a plan is permitted to apply the rules of section410(b)(4)(B) to treat the plan as two separate plans for purposes of section 410(b) and apply the safe harbor requirements of this section to one plan and apply the requirements of §1.401(k)-2 to the other plan. See §1.401(k)-1(b)(4)(vi), Example 2.