Safe Harbor Match

[thepensionmaven]

TPA had designed a 401(k) with SHM for 2015.  Client insisted on a 3 month waiting period for new entrants, but all employed as of effective date were grandfathered. Elapsed time vs. hours worked.  Client was told the only way to exclude PT was to have a 12 month service requirement so the plan was re-drafted. Plus, the plan was designed with a default deferral of 4% so they could get the 4% SHM.

Safe harbor contribution made for all that met the eligibility, Form 5500 was filed as there were more than 100 participants.

I believe another organization was going to buy the company AND compared this plan to theirs.

At that point, client realized that the original intent was to exclude part-time and seasonal employees and was told he could do this with the 3 month service; and wants us to go back and redo as he says that some of the employees were truly part-time and seasonal., which would bring the number of participants to less than 100.

Q#1, since we are in 2017, I doubt whether we can go back to 2015 to correct.

Q#2, what is there to correct, how would the client know when an employee was hired, that he would be part-time?

Q#3, since client made the 4% match for people that default deferred 4% to geT the match, how is that handled, as client states they should not have; and in fact, should not be in the plan.

 

[CuseFan]

Either client got bad advice or the plan was poorly designed or client has selective memory - or possibly a combination of all three. #1 - 2015 is in the books correct and proper as the plan was written, I assume, in which case there is nothing to correct and so #2 and #3 are moot.

[ETA Consulting LLC]

Plan documents (at least the one I use) have language to require PT Employees to actually work a full year of service in order to enter the plan while allowing everyone else to enter in a shorter period.  The document also has the language necessary to define PT employees in terms of the number of ours worked per week.

For instance, You can write a plan with a one month entry while requirement PT employees to work a full year.  PT employees can be defined as anyone working less than 25 hours per week.

I believe the client got bad advice; as it is obvious that this was not explored. As a result, thousands are going to be paid for an independent auditor for something that could've easily been prevented.  

The unfortunate thing is that I've seen much worse; clients getting hung out to dry by not receiving the accurate and complete information necessary to make an informed decision.

Good Luck!

 

[BG5150]

If the PTers came in with the 12 month requirement, then they definitely would have come in under the 3-month rule.

Even with ETA's plan design, they would come in.

Or am I missing something.

Side note:  you don't have to have automatic deferral in order to take advantage of the SH Match.

[ETA Consulting LLC]

I have seen plans that have brought casual employees (e.g. 2 hours per week) in using the elapsed time method.  So, the suggestion that PT employees would eventually come in is not necessarily true.  It is something you have to project out when looking at the census.

Part of plan design is anticipating and avoiding the pitfalls upfront with the census analysis while continuing to monitor the trends after the plan is in place.  Avoiding the 100 participant count at the beginning of year 1 (and then 120 limit in subsequent years) is an important plan design function.  When you fail to project and implement approaches to avoid it, then you've failed your client.  Maybe that's just me being a hard-ass :-) 
I've seen plans that made the 121 participant count and became large plan while they had tens of terminated participants with balances less than $1000 that were never forced out.  Heck, after that, you should be prepared to implement an auto rollover provision to force out balances up to $5K to avoid the limit.  BUT, never let your client get blindsided with a audit fee that they never saw coming. 

Good Luck!

[thepensionmaven]

OK, still, how can PT employees be excluded with a 3 month service requirement, unless the plan excludes PT/Seasonal employees by class?

[thepensionmaven]

Some of the employees that meet the 3 months are FT.

This just doesn't make sense, or am I missing something here?