One company - two plans...safe harbor?

[Chippy]

 A law firm sponsors two plans,  one if for the Associate attorneys, deferral only, and the other is for the Partners and Staff, deferrals and a new comp profit sharing.   The plans have always passed coverage testing.    

Can the Partners and Staff plan add a non-elective safe harbor?  

[Tom Poje]

you did not say if plans passed testing aggregated or unaggregated.

1.401(k)-1(b)(4)(iii)(B) last sentence "you can not aggregate a plan using the ADP safe harbor provisions with a plan that is using the ADP test" so it would complicate things, because how you test plans for coverage also requires how you test for nondiscrimination (and vice versa)

[Luke Bailey]

I agree with Tom Poje. If aggregated, no, if pass 410(b) separately (and probably also associates plan not used for 401(a)(4) rate group testing), then yes.

[Chippy]

Thanks guys.   They can pass separately but I didn't recommend it in case there is a year where they do not.   

[Mike Preston]

It is highly likely that this structure is set up so that the associates' plan can get by without any TH minimums.  If so, in case there is a year where they do not pass coverage independently there will be a TH minimum that will make the client very angry.  If so, and they are comfortable with the design as it is, the additional pain and aggravation caused by losing Safe Harbor status will be minimal.

[Kac1214]

Why do you say it is highly unlikely that the associates plan would not have to receive TH minimums? I've seen plans set up this way and no TH was required. Thanks

IGNORE THIS

 

 

 

[Belgarath]

As I read Mike's post, I don't think that is what he said.

[Mike Preston]

Is Kac1214 our very own fake news generator?

[shERPA]

Doesn't TH depend on which way the aggregation runs?  Typically the partner/non-attorney staff plan will pass everything on its own as it excludes associates and non-equity partners,  many/most of whom are HCEs.   This plan has the key employee participants, and is usually TH.   Unless it relies on the associate plan to pass some test, the associate plan would not be included in the TH RAG with the partner plan.  So the associate plan (with no key ee participants) would not be TH and no minimum required.

Sometimes the associate plan needs to aggregate with the partner plan to pass coverage (again because many/most are HCEs).  But aggregation running this direction does not trigger a RAG.  416 regs Q&A T-6.

Aggregation is aggravating! 

[Mike Preston]

shERPA, my understanding is the same as yours.

[Chippy]

Do you see any problems moving them to use the Top Paid Group election?       Coverage isn't an issue, but they do have problems passing the ADP test.    The associates plan has quite a few HCE's and most do not participate.     I ran the ADP test with the TPG for 2016 and it would have passed.    

[Tom Poje]

the notes I have from the Coverage and Nondiscrimination Answer Book are as follows: Q 12:43

A plan has the option to use either prior year testing or current year testing—any such a change would constitute a discretionary amendment. Therefore, in the case of switching from current year testing to prior year testing (or vice versa), such amendment must be adopted no later than the last day of the plan year for which the amendment is effective. [Rev. Proc. 2005-66, § 5.05(3)]

If the plan changed the HCE definition (for example, making a top-paid group election), the amendment might have to be in place earlier to avoid a Section 411(d)(6) cutback in accrued benefits

..............

The reason the top paid group election 'might' have to be in place earlier is because of things such as a plan that has 2 allocation groups, one HCE and one NHCE. if you change the election now and have it effective for the current year, then someone who was an HCE suddenly is an NHCE, and that would could result in an allocation cut back.

now, can you change it if it is solely for purposes of the ADP test and no one is getting cut back?

[Kac1214]

My apologies for my poor reading comprehension, I inserted an "un" in Mike's comment. Sorry for that. 

 

[Mike Preston]

NP