New 401k plan - Am I missing something in the regs for eligibility?

[Jakyasar]

Hi

Someone I work with where I provided a combo plan proposal forwarded the following they received from the 401k recordkeeper (no name will be mentioned).

Background, brand new plan, effective 1/1/2023, signed 3/31/2023 with the following:

401k deferral and NESH (3%), eligibility - age 21 and 6 months service with entry 1st day of the month after completion of 6 months - no hour requirement

PS, eligibility - age 21 and 1 year service (1000 hours service required) with entry 1st day of month after completion of 12 months

Additionally, as special provision, all employed on or before 1/1/2023 enter the plan without regards to the above eligibility

This is what they received from the recordkeeper as forwarded by the client:

"I received the feedback below from Compliance: This is a Safe Harbor plan, so we cannot make this plan more restrictive by adding 1000 hours service requirement for PS in the middle of the plan year.* Please let us know if you want to make these changes effective 1/1/2024"

What am I missing here?

Thanks

[truphao]

I do not think you are missing anything here with a caveat I ain't a 401(k) expert.   Somehow random words like Paychex and ADP are floating through my head.

[Lou S.]

Are they confusing the safe harbor and the profit sharing and assuming they are the same?

I mean sure it was existing plan that didn't have a 1000 hr requirement I would agree with their 2024 comment but if this is a brand new plan that is putting in 1000 hr requirement form the get go on PS what is the problem?

 

[Paul I]

The time to raise a compliance concern with a new plan on the part of the recordkeeper is well before the document is signed.  Out of curiosity, are you the 401(k) document provider or did the recordkeeper provide the document?  All too often, some providers design their plan document or policies for their administrative convenience.  I would ask for an explanation in writing from the compliance department in chapter and verse explaining their comment.