401(a)(4)testing of safe harbor non-elective component

[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!

[Guest]

If I understand your question,all you're proposing is an allocation of X% of comp up to the TWB plus X% of excess comp. Test the allocation on contribution basis and impute the disparity. The allocation rates will be identical,so each rate group wil pass the ratio percentage test. That should do it.Am I missing something?

[Guest JL]

Thanks so much for posting--I was beginning to think I was way out in left field. Yes, you understood what I was saying and yes, the traditional integrated formula does pass the (a)(4) DC permitted disparity method with identical EBAR's.

I guess my qualm is that no other practitioner seems to be taking this stance (from the various postings on the different message boards, everyone seems really clear that the safe harbor 401(k) plan's non-elective component cannot be integrated, cannot carry a 4th duty of meeting the 401(l) 3% base. If it were so simple as testing the traditional integration formula on an (a)(4) basis (and generally having an "automatic pass" like age weighted PSP's), why aren't more people willing to do it?

Thanks much!

Jennie

[Richard Anderson]

If you are wanting to impute disparity on the 3% safe harbor contribtion, I don't believe that you can do that.

Notice 98-52 says:

"However, pursuant to section 401(k)(12)(E)(ii), to the extent they are needed to satisfy the safe harbor contribution requirement of section V.B, safe harbor nonelective contributions may not be taken into account under any plan for purposes of section 401(l) (including the imputation of permitted disparity under section 1.401(a)(4)-7)."

Section 1.401(a)(4)-7 describes imputing permitted disparity for the general test.

[Guest]

Richard makes a good point. There are certain contribution you can not 'impute' disparity on. It is easy to overlook or forget about these.

[AndyH]

I agree with Richard's comments. You must ignore the safe harbor contributions for purposes of imputing permitted disparity. The EBARS would not be the same.