Excluding union employees from safe harbor match?

[Flyboyjohn]

Can I allow union employees to make elective deferrals but exclude them from the safe harbor match or do I have to set up a separate plan for them?

[Luke Bailey]

Flyboyjohn, I have not dealt with that situation personally and don't see anything directly in 1.401(k)-3 regarding the issue, but I think probably you have a separate "plan within a plan" already in the situation you describe because of the mandatory disaggregation of the union group under 1.410(b)-7(c).

[Flyboyjohn]

Thanks Luke and I agree under the mandatory disaggregation rules I can do what I'm trying to accomplish within a single plan. 

[austin3515]

I tried to find where the rule is written that any NHCE who is eligible to participate must receive the safe harbor contribution.  I didn;t see it in the statute or in 1.401k-3.  Can anyone point me there?  IT seems we need t analyze that language.

[Belgarath]

Agree with Luke.

[Kevin C]

12 hours ago, austin3515 said:

I tried to find where the rule is written that any NHCE who is eligible to participate must receive the safe harbor contribution.  I didn;t see it in the statute or in 1.401k-3.  Can anyone point me there?  IT seems we need t analyze that language.

Start with 1.401(k)-3(b)(1) for the 3% non-elective SH or 1.401(k)-3(c)(1) for a SH match.  You'll also need the definition of Eligible NHCE, Eligible Employee  and Plan in 1.401(k)-6.  The definition of Plan will lead you to other cites before you get to the definition being used.

[austin3515]

Thanks Kevin C.  I was hoping it would be a bit more clear and say "any NHCE's eligible to make 401(k) contributions" which is how I have always heard the rule described.

But I also did this - I went to our pre-approved document and sure enough there is an option to exclude union employees from the safe harbor just as  you can excluded HCE's and otherwise excludables.  So you can definitely do it.  I wish I could see the trail in the regs as described above, but I didnt spend too much time digging.  But you must be right because it's in my pre-approved document!

[AMDG]

Is your question whether all employees need to receive the matching contribution safe harbor notice, or only the employees who are actually eligible to receive it?  If so, I think that the answer is unclear, because the definitions of eligible employee differ and the (k) definition is broader than the (m) definition:

 

• “Eligible employee” is defined in §1.401(m)-5 as “an employee who is directly or indirectly eligible to … receive an allocation of matching contributions (including matching contributions derived from forfeitures) under the plan for all or a portion of the plan year.”  This implies that the SH notice needs to be sent only to those employees who are eligible to receive the SH match.

 

• However, 1.401(m)-3(e) states that “a plan satisfies the notice requirement of this paragraph (e) if it satisfies the notice requirement of §1.401(k)–3(d).”

 

• “Eligible employee” is defined in §1.401(k)-6 as “an employee who is directly or indirectly eligible to make a cash or deferred election under the plan for all or a portion of the plan year.”  This implies that the SH notice needs to be sent to all employees who are eligible to contribute to the plan.

Does anyone know if there is a definitive answer to this question?  Thanks!