401k <> safe harbor eligibilty

[TPApril]

My memory is failing me here.

I recall that 401(k) and safe harbor plan eligibility are best kept with the same eligibility requirements.

I can't remember the drawback to having them different.

[C. B. Zeller]

The plan loses its top heavy exemption if there are employees who are eligible for 401(k) but not for safe harbor contributions.

[TPApril]

That's it - so no issue then for plan that offers other employer contributions than safe harbor.

[Mr Bagwell]

You may to ACP test based on plan design.

[Paul I]

I understand that the plan loses its top heavy exemption if there is any actual allocation of an employer contribution or forfeitures (using a contribution type basis) other than a SHNEC or SHM.

[Belgarath]

When you say "no issue" I assume you are asking/meaning if it is PERMISSIBLE to have different requirements, and you are correct, there is no prohibition against it. A lot of plans aren't top heavy anyway, so the loss of the automatic top heavy exemption is meaningless in many cases. Although we prefer same eligibility requirements for administrative reasons, we have a fair number of plans that have different eligibility requirements.

[BG5150]

Don't you have to do ADP/ACP testing on the folks who defer but don't qualify for the SH yet?

[Mr Bagwell]

1 minute ago, BG5150 said:

Don't you have to do ADP/ACP testing on the folks who defer but don't qualify for the SH yet?

Yes.  I should have said you may have to ADP/ACP test.

I have found that the ADP/ACP will most likely pass with a dual eligibility design because you most likely will have no HCEs.  But it does happen.  The common problem is immediate HCEs due to owners wifes and or children coming into the plan right away.

[EBP]

Yes, if you want to be exempt from testing, the eligibility requirements need to be the same.