terminated employee in Safe harbor plan with deferrals effective 10/1/15

[cpc0506]

We have a new plan. Plan was effective 1/1/15 with deferral effective 10/1/15. Plan is a safe harbor with 3% non-elective contribution. Plan uses full year compensation.

I have 2 employees who terminated prior to 10/1/15 but based on eligibility entered the plan on 1/1/15. Does client need to provide 3% non-elective to these terminated employees?

My answer is no since they were not eligible for the deferral portion of the plan because they terminated before that feature began. If not eligible for deferral, then not eligible for 3% non-elective.

Does anyone agree?

[Lou S.]

They are eligible 1/1/15 then they are eligible for the 3% SHNE.

Plan should have been drafted to exclude them from the plan so they didn't become participants if you didn't want to give them a contribution.

[cpc0506]

I don't agree. A safe harbor contribution is given to anyone who is eligible to defer. The deferral portion of the plan was not effective until October 1, 2015. The employees were already terminated at that point. They were not eligible to make deferrals, so not eligible for Safe Harbor.

Is my reasoning wrong?

[Mike Preston]

No, but it needs a bit more seasoning. You describe what is required. But the plan can be more generous. You have to follow the terms of the plan.