Who is entitled to Safe Harbor

[pensionnube]

First time poster, so please bear with me.......

This is a calendar year plan. The plan is a hard coded safe harbor.

I have a participant that was termed in 2012 and recieved pay 90 days after termination which went into 2013. What confuses me is the employer also withheld 401(k) from this excess monies.

My question is: Is she entitled to Safe harbor for 2013? And or included in testing. Can i disregard her all together?

Please advise.

[buckaroo]

I have been under the impression that there are two schools of thought in a situation where a participant was paid eligible compensation, but did not work in the year in question. The first is if a participant was paid during a plan year then they should be included in the testing. The second is that if a participant did not work during a plan year that they should be excluded from the testing. I think the more conservative approach would be to include them in the testing and provide them with the SH contribution. (Especially since they made elective deferrals in the testing year.) You may want to have the plan sponsor confirm in writing whether or not this participant should be included in or excluded from the testing.

[Kevin C]

The plan document should say what kinds of post severance compensation count as plan compensation. It may be in the Section 415 amendment. The plan will also say what the requirements are to receive the safe harbor contribution. The standard answer of "What does the plan say?" applies here. The type of compensation and whether it would have been paid if the participant continued to be employed will likely affect the outcome.

[david rigby]

... and if the plan is not clear, it's time to make sure it's amended.

[masteff]

What confuses me is the employer also withheld 401(k) from this excess monies.

Speaking solely to this bit: It could be that the employer did it deliberately but it just as easily could be that they simply didn't turn off the deduction in their payroll software. Don't presume it was correct, but on the other hand, it was done so take it into account when reaching your conclusion.

[chc93]

Also maybe look at the compensation section. If this "extra" money will be reported on the 2013 W-2, then wouldn't that be "compensation" in 2013 thereby allowing deferrals and requiring safe harbor? The converse is the argument that no compensation means no chance for deferrals so not in ADP test.