Testing Failure

[dneterr]

I'm new to testing and using Datair.  I have a 401k plan Safe Harbor Match, with cross tested PS, one year and age 21, 1,000 hours and dual entry but the employer only ever does PS (against our plan design maximization).  I have small veterinary practice with one owner, 6 part time that don't meet service requirements, one ineligible due to age, and one terminated with 1051 hours.  Plan is top heavy.  My software is telling me I have failed every test but I think it is wrong.  ADP/ACP - no deferrals, 410b should pass because no NHCE's are eligible, and last day of the plan year provision should allow for a full contribution for owner   

[C. B. Zeller]

I think your terminated NHCE is nonexcludable. You can treat a terminated employee as excludable if they terminate in the current year and worked less than 500 hours, and only if they did not benefit in the plan solely because they terminated with less than 500 hours. In your case they worked more than 500 hours so they have to be included in your coverage and nondiscrimination test. If the plan has a last day requirement to receive a contribution, then you will either need to rely on a 410(b) failsafe (if the plan has one) or do a 1.401(a)(4)-11(g) amendment to waive the last day requirement for this employee.

[Bill Presson]

CB is correct.

[dneterr]

Thank You!! 

[BG5150]

Side note:  why even have a SHM?

 

[dneterr]

Good question:) From a design standpoint - it seems like safe harbor isn't always best.  The cross tested works perfect for this client and the safe harbor is just complicating matters.

[Nate S]

If a sole-prop, so that deferrals can be elected with 100% hindsight, if turnover is variable then you could have differing benefitting each year such that an older nhce may throw off 401a4 one year.  Especially handy in rural areas where rehires can be repeated and often.