Safe Harbor 3% funded each payroll

[Rai401k]

We a plan that funds the 3% SHPS contribution each payroll period. All compensation is used, in other words they are NOT excluding comp prior to plan entry.

Are there any problems if the client waits until the end of the plan year to true up new hires 3% safe harbor. Right now they start the 3% upon plan entry and then we calculate the true up.

However should we require them to true up the 3% from the beginning of the plan year as soon as the participant enters the plan?

[Flyboyjohn]

I have a problem with making contributions for the benefit of an employee who isn't yet a participant, what happens if they terminate employment before reaching the entry date?

I vote for either changing the entry date or the definition of includable compensation.

[Bird]

So they are just funding it each pay period; the plan does not say that it is calculated each pay period? I think you can true it up whenever it is convenient - after the end of the year if that works best. I suppose if you have HCEs getting contributions each pay period it might appear discriminatory but...nah.

[BG5150]

I have a problem with making contributions for the benefit of an employee who isn't yet a participant, what happens if they terminate employment before reaching the entry date?

I vote for either changing the entry date or the definition of includable compensation.

The OP is not talking about putting in money for people not yet eligible, but making a true-up as soon as they enter the plan. For example:

Flyboyjohn enters the plan on July 1. He's making $2,500 semi-monthly. Should the company make his first SH contribution $75 (2,500 * .03) or $950 (2,500 * 12 + $75)?

I would say they can wait until the end of the year. Or do it right away. As long as it's consistent.

[david rigby]

I would say they can wait until the end of the year. Or do it right away. As long as it's consistent.

I would say the plan should include a method, so consistency is assured.

[Rai401k]

That's correct, participants are eligible for the contribution. It's sh profit sharing so it's based on their annual comp they are just funding it on a payroll basis

And that's correct BG5150, we don't know if it's better to have them true-up when they enter or if it's ok to wait till the end of the year.

So far, we've been doing it at the end of the year so we will leave it as is, we just wanted to get an idea if it was ok to wait. Sound like everyone agrees as long as we keep it consistent it's ok.

Thanks!

[Bird]

I have a twist on this. Takeover plan - it's a safe harbor nonelective. Plan effective date is 1/1/14; it was signed on 9/1/14 and that's when Pay... er, the large payroll company that set up the plan...started calculating and making the safe harbor contributions. There is a section of the plan that says:

The Safe Harbor Contribution will be calculated based on the following frequency: Per-Pay Period

("Per-Pay Period" is typed in, not a check-box election.)

I'm not quite sure what to make of it; should we do a true-up for the compensation prior to 9/1?

I think if they wanted it effective 9/1 they could/should have said so, and think additional contributions are due.

(Making it a bit more interesting is that it is a sole proprietorship, but the owner gets W-2 income. He has significant Schedule C income and using that income as a 12/31 "pay period" will result in a significant additional contribution for him.)

[Rai401k]

I've never heard of this for a non-elective contribution, only for matching. I was going to say to check the definition of compensation and to see if it excludes prior to plan entry but it seems that they are not even going by that they are strictly giving the SH based on the plan execution date. I would say that they have to true up from 1/1/2014.

[Bird]

Thanks, that's what I concluded. I agree that the "per-pay period" calc is typically for match.