SH Nonelective - First Plan Year

[Gilmore]

A new 401(k) plan is setup later in 2020 with an effective date of 1/1/2020.  Profit sharing effective 1/1/2020,  deferrals and 3% SH Nonelective effective 10/1/2020.  All ees hired on or before 1/1/2020 are eligible for the plan.  Comp is full year comp (not date of participation).

Employee is hired in 2019 and thus a participant in the plan on 1/1/2020, but terminates on 8/1/2020.

Question:  Is this participant required to receive the 3% safe harbor because they were eligible to participate in the Plan on 1/1/2020, or do they not receive the safe harbor because the safe harbor portion of the plan was not in effect until after their date of termination?

Thanks very much.

[Lou S.]

Well it's 3% of full year comp to be SH NE so the ee is eligible for SH 1/1/2020 and gets the 3% NE. You can't have a short year NE it's got to be 12 months.

[Gilmore]

Great, thanks Lou.

[cpc0506]

I want to ask another question:  If compensation had been participation compensation, would you answer be the same?

[Lou S.]

47 minutes ago, cpc0506 said:

I want to ask another question:  If compensation had been participation compensation, would you answer be the same?

The answer is it depends. You can't just say the SHNEC is is effective 10/1 for a 3 month plan year for that component of the plan and say everyone's "participation comp" for the SHNEC is limited to 10/1 - 12/31 because you don't have the required 12 month period for a SHNEC. But if you have a say for example a 21 and 1 quarterly entry and base the SHNEC on partication comp then people who enter on 10/1 under that would be limited to 3 months of compensation for the SHNEC.

[cpc0506]

Ok.  Can you clarify two points?  So, ignoring the entry date requirements, are you saying that the only time that the SHNEC can be less than 12 months is if the initial plan year is less than 12 months?  If so, when can you have a short year SHNEC plan? 

[Lou S.]

28 minutes ago, cpc0506 said:

Ok.  Can you clarify two points?  So, ignoring the entry date requirements, are you saying that the only time that the SHNEC can be less than 12 months is if the initial plan year is less than 12 months?  If so, when can you have a short year SHNEC plan? 

Maybe I'm off. Check the regs under 401(k)(12)(e) it seems like first and last years you might be able to get short PYE as long as 3 months long.