Safe Harbor Participant

[Stash026]

I'm taking over a Plan where they amended the eligibility for 401(k) Contributions to 21 + 1 month of service, but the eligibility for Safe Harbor Contributions still reads 21 + 1 year (it wasn't amended).

Does anyone see a problem with that? A SH Participant just says that they satisfied eligibility as per the Addendum and were eligible to make a 401(k) Contribution at any time during the year.

Thanks in advance!

[Tom Poje]

1.401(k)-3(h)(3) permits a plan to provide safe harbor contributions to those who have completed the minimum required age and service. the paragraph is entitled "Early participation rules"

so there is nothing wrong with having immediate eligibility to defer and a 1 year wait for safe harbor

you lose the get out of safe harbor free option rule....

ooops

get out of top heavy free option

[pmacduff]

think Tom's in the throes of busy season like the rest of us??

I think he meant to say that you lose the "get out of top heavy" free option when you have 1 YOS on the safe harbor piece, right Tom?

[jkharvey]

Sorry to hijack this thread, but I have a related comment/question. Suppose this design provides for the immediate eligibility to defer, but have to wait 6 months for SH contribution and in 2014 there are no participants who are newly eligible. Each participant in the plan for this plan year has been eligible for Safe harbor for the full year. does the fact that the plan provides for the different eligibility language remove the TH exemption or can we be TH exempt since no one in the current plan year was not receiving the SH match?

[Tom Poje]

as I recall it doesn't matter if no one falls into the group, the regs simply read if there is different eligibility requirements then you lose top heavy free, but I don't have access to any notes at this time.. (resource material at one place I am at another)

but I could be wrong with seeing the exact verbage

[K2retire]

I thought the rule was that in years when the only contributions were deferrals and SH you were exempt from TH. That would seem to apply to years when no one receives a THM.

[Tom Poje]

see situation 4 of rev rule 2004-13

it doesn't matter if there are only deferrals and safe harbor

if there is different eligibility for deferral than for safe harbor.

the way situation 4 is worded implies it doesn't matter if it turns out no one is otherwise excludable (or at least that is how I read it)

the write up to situation is possible a little less clear.

rev rule 2004-13.pdf

[cheersmate]

To continue using this thread...

For those eligible for only the 401k portion (since have less than the 1YOS), are their deferrals tested via ADP testing (since not part of the SH contribution)? Assuming no new HCEs in this category, ADP would pass. But if have a new HCE and NHCE, do you test via ADP?

If Plan is TH, how does the employer satisfy TH for those eligible for only the 401k portion (since have less than the 1YOS), assuming still employed on last day of plan year (assuming plan requires LD for THMin)?

Thank you!

[austin3515]

You do have to run the ADP/ACP for the non-safe harbor portion of the Plan.

1.401(k)-3 Safe harbor requirements.
(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 section 410(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.

410(b)(4)

(4) Exclusion of employees not meeting age and service requirements

(A) In general

If a plan—

(i) prescribes minimum age and service requirements as a condition of participation, and

(ii) excludes all employees not meeting such requirements from participation,

then such employees shall be excluded from consideration for purposes of this subsection.

(B) Requirements may be met separately with respect to excluded group

If employees not meeting the minimum age or service requirements of subsection (a)(1) (without regard to subparagraph (B) thereof) are covered under a plan of the employer which meets the requirements of paragraph (1) separately with respect to such employees, such employees may be excluded from consideration in determining whether any plan of the employer meets the requirements of paragraph (1).

i.e., you have two plans. One safe harbor plan covering everyone with 6 months and one non-safe harbor plan covering everyone with less than 6 months. But of course that is only an issue if the owners kid/spouse gets hired because no new hire without ownership would ever be an HCE.

[cheersmate]

Thank you for all of this!

If the Plan is Top Heavy for the given year, can the Plan provide a 3% TH Min allocation to the excluded group? And in doing so, not run afoul of any Gateway issues wrt to the excluded group?

Thanks again.

[austin3515]

If the Plan is Top Heavy for the given year, can the Plan provide a 3% TH Min allocation to the excluded group?

If the Plan is Top Heavy for the given year, you MUST provide a 3% TH Min allocation to the ENTIRE Plan. So if the Plan is a safe harbor match, anyone not getting a match of at least 3% of pay needs to be topped off. Anyone not getting any match gets the 3% THM. If you're using comp as a participant in a 3% SHNEC, you might need to top off the Newly Eligible employees.

And in doing so, not run afoul of any Gateway issues wrt to the excluded group?

What does gateway have to do with this? Is this a cross-tested plan? If so, you can ignore the excludables for purposes of the gateway anyway.

Dangerous plan design for a top-heavy plan especially if you don't already know the answers to these questions. Lots and lots and lots of traps for the unwary...

[cheersmate]

The Plan is cross tested and for years has not been Top Heavy.

Something I read recently suggested that by making the 3% THMin allocation for the "otherwise excludables" would "trigger" gateway minimum failure if the balance of the plan (i.e. 1 YOS...) has a 5% minimum GW requirement, i.e. suggesting the ENTIRE plan had to be tested for GW minimum purposes. The failure would be because the "otherwise excludables" can ONLY be allocated the 3% THMin, and not be increased to 5%. This is why I posed the above to clarify this.

[austin3515]

If so, you can ignore the excludables for purposes of the gateway anyway.

[cheersmate]

Perfect. Thank you. I can now skip going into a panic!