safe harbor when business commmenced 7/1

[thepensionmaven]

Two employees previously working for a law firm started their own practice 7/1/2019 and want to set up a safe harbor 401K by 9/30/2019

I believe the plan would need to start as of the date the practice started, have a short plan year as they were employees of another firm prior to that date. No eligibility and all employees that started with the firm, whether part time or full time need be included.

I also believe the only safe harbor available at this point, judging from the clients' goal, would be a safe harbor match, with the hopes that the employees not defer?

Am I off track here?

[Larry Starr]

6 hours ago, thepensionmaven said:

Two employees previously working for a law firm started their own practice 7/1/2019 and want to set up a safe harbor 401K by 9/30/2019

I believe the plan would need to start as of the date the practice started, have a short plan year as they were employees of another firm prior to that date. No eligibility and all employees that started with the firm, whether part time or full time need be included.

I also believe the only safe harbor available at this point, judging from the clients' goal, would be a safe harbor match, with the hopes that the employees not defer?

Am I off track here?

Yes.

1) Nothing prevents you from making the plan effective 1/1/19 even though they were not yet in business. What you have to make sure of is that whatever you do for eligibility brings in the people you want. No short plan year needed.  Also, you can use as predecessor service the time they were with the prior firm, so 1 year/age 21/semi annual entry date (with 7/1 entry) would work and part timers (under 1000 hours) aren't eligible.

2) The plan will likely be top heavy so go with the 3% non-elective since you'll have to give 3% TH minimum anyway.

Larry.

[Gadgetfreak]

Larry: For #2, why wouldn't a SHM work as well to satisfy TH? Doesn't an SHM satisfy TH if there are no other ER contributions? Or does it have anything to do with the fact that the SHM wouldn't have been in affect for the entire year?

[Larry Starr]

9 hours ago, Gadgetfreak said:

Larry: For #2, why wouldn't a SHM work as well to satisfy TH? Doesn't an SHM satisfy TH if there are no other ER contributions? Or does it have anything to do with the fact that the SHM wouldn't have been in affect for the entire year?

I always assume there will be other employer contributions; we actually have ZERO plans that are just deferral and match plans so I just don't usually think of it.  But yes, since those plans are not required to provide TH minimum, that would work as well.

[Eve Sav]

Was there a 401(k) plan at the prior law firm? If so, did they defer, and how much did they defer, into the prior law firm plan?