ADP Safe Harbor - Dual Eligibility - First Plan year ADP testing

[mrslappywhite]

Hello,

Plan in question is a start-up - both plan and plan sponsor.

Plan sponsor established 5/1/15 & Plan effective 8/15. So first plan year is 8/1/15 - 12/31/15.

Eligibility is 18/no service for deferrals and 18/1 YOS for SHNE...monthly entry for all sources.

Anyone employed as of 7/31/15 is eligible for all contributions in the plan as of plan's effective date.

Out of 29 EEs, 25 were employed as of 7/31/15 and therefore are eligible for all contributions. The four hired after 8/1/15 are all eligible for deferrals, but not SHNE (duh).

I understand that when there is a dual eligibility situation, there is the potential for needing to segregate certain employees and test them if there is an HCE in that group. Most of what I find regarding this situation alludes to using permissive disaggregation of statutory EEs (to make up the safe harbor "plan") from those who are not 21 and haven't completed a YOS (tested "plan"). BUT - in this case, wouldn't that mean everyone in the plan falls into this category, and so I would need to test the entire plan for ADP? This makes for a return of $3150.00 and probably an angry plan sponsor and flabbergasted relationship manager.

To put it another way, when there is a situation in which some EEs are eligible for SH contributions, and others are not, is the OEE rule the only rule applied to testing, or is the option there to only test those who have not met the PLAN'S eligibility for SH contributions? If I were able to do that, I would have four people in my test - 1 HCE and 3 NHCEs. Under this scenario, I would have a return of about $20 bucks, and (hopefully) an understanding plan sponsor and (but probably still confused) relationship manager.

***Just for fun, the plan is also Top-Heavy for the first year (and probably forever - there are 13 keys), so those three NHCEs would also be getting a THM (HCE is also a Key, which is probably obvious to all of you ERISA experts!)

(And no, I had no input on plan design...)

Thanks to anyone who read this and offers advice!

Slappy

[Mike Preston]

It goes against every bone in my ERISA-fied body to both give somebody a SHNEC and include them in an ADP test. I vote for $20 bucks and a less confused manager. Doesn't your document state that the default ADP test will be performed only on those that are not eligible for the SHNEC?

[Lou S.]

Since the short service folks need to get 3% anyway because of TH why not designate some or all of the TH minimum as a QNEC to those folks (assuming the Plan allows for that) and see if that passes the test?

[mrslappywhite]

Mike - I spoke to our "ERISA-fied" benefits officer and he seemingly agrees with you, so I believe that is the way I will go. Thanks!

Lou S. - I will look to see if this is an option for the tested part of the plan. If so we can probably leave all money in the plan for this year. Thank you for the suggestion!