Safe Harbor Contribution and Terminated Participants

[EEK]

I am interested in any comments regarding giving safe harbor (3%) contributions to former participants who terminated before an existing calendar year profit sharing plan was amended to add a safe harbor provision on October 1st of the plan year in which termination occurred. Such employees would not be "eligible" when the safe harbor provision became effective.

Thank you.

[Lou S.]

Is the plan retro-active to 1/1?

Is the plan drafted to specifically exclude them?

If it is drafted to exclude, do you pass coverage testing?

What does the document say?

[EEK]

Thank you for your questions.

The plan has been in effect for several years as a profit sharing (with new comp formula). It was restated effective October 1st to add a 401(k) feature. Deferrals began with the first pay period after October 1st.

At the same time, a safe harbor provision was added, also effective October 1st. The plan provides that a 3% safe harbor contribution be made for eligible participants actively employed on and after October 1st.

There are two terminees in question. Both terminated in the year the 401(k)/safe harbor provisions were added, but prior to October 1st. One worked <500 and one more. Coverage testing passes with the <500 terminee excluded.

[Lou S.]

I believe if you have excluded them from the plan (or portion of the plan) that they do not need to receive the contribution. It sounds like the plan was drafted such that they never enter that component of the plan. In other words it sounds like you are good to go, and not give them a contribution.