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LTPT and safe harbor plans


Belgarath

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Everyone's favorite subject...I just want to see if I'm understanding this correctly, with regard to safe harbor plans using Otherwise Excludable Employees exception.

So, in a safe harbor plan that does NOT use the OEE provision, LTPT employees can be excluded from all employer contributions, and the plan does not automatically lose its top heavy exemption, assuming only contributions made are deferrals and safe harbor match or nonelective. 

However, the loss of top heavy exemption remains in place if the safe harbor plan uses the OEE exclusion, even though LTPT employees are still permitted to be excluded from safe harbor and top heavy if the plan is top heavy.

Have I got that right? For some reason, I'm finding this very confusing.

 

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When you're referring to plans that use the OEE provision, do you mean plans that have different eligibility for deferrals and safe harbor? In general, the option to disaggregate otherwise excludable employees is a testing election that is made operationally - it is not a plan design specification.

A plan that has the same eligibility for deferrals and safe harbor, and makes no other contributions, is considered to not be a top heavy plan. A plan that has different eligibility for deferrals and safe harbor, or that makes other non-safe harbor contributions, loses this exemption.

The proposed regs say that basically, you ignore the LTPTEs entirely when you make this determination. So if everyone who is eligible for deferrals also gets safe harbor, except for the LTPTEs who are eligible for deferrals but get no safe harbor, then you still have a non-top-heavy plan. If there are some employees who met the plan's normal eligibility requirements (i.e. something less than 3 (or 2, starting in 2025) consecutive years of 500 hours of service) and those people are eligible to defer but not to receive safe harbor, then you lose your top heavy exemption.

It IS confusing. I had written a couple more paragraphs about this but deleted it, worried that I might make your confusion worse. I'm hopeful that IRS will improve the situation in the final LTPT regs.

Free advice is worth what you paid for it. Do not rely on the information provided in this post for any purpose, including (but not limited to): tax planning, compliance with ERISA or the IRC, investing or other forms of fortune-telling, bird identification, relationship advice, or spiritual guidance.

Corey B. Zeller, MSEA, CPC, QPA, QKA
Preferred Pension Planning Corp.
corey@pppc.co

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9 minutes ago, C. B. Zeller said:

When you're referring to plans that use the OEE provision, do you mean plans that have different eligibility for deferrals and safe harbor? In general, the option to disaggregate otherwise excludable employees is a testing election that is made operationally - it is not a plan design specification.

I was actually referring to a plan that specifies, say, 3 month eligibility for deferrals, and 1 YOS for safe harbor. Probably should have worded it better! Such a plan loses its automatic TH exemption, right?

10 minutes ago, C. B. Zeller said:

A plan that has the same eligibility for deferrals and safe harbor, and makes no other contributions, is considered to not be a safe harbor plan. A plan that has different eligibility for deferrals and safe harbor, or that makes other non-safe harbor contributions, loses this exemption.

I assume your word "not" is a typo?

 

12 minutes ago, C. B. Zeller said:

The proposed regs say that basically, you ignore the LTPTEs entirely when you make this determination. So if everyone who is eligible for deferrals also gets safe harbor, except for the LTPTEs who are eligible for deferrals but get no safe harbor, then you still have a non-top-heavy plan. If there are some employees who met the plan's normal eligibility requirements (i.e. something less than 3 (or 2, starting in 2025) consecutive years of 500 hours of service) and those people are eligible to defer but not to receive safe harbor, then you lose your top heavy exemption.

Ok, this is what I was thinking. 

Thank you for your response!!

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2 minutes ago, Belgarath said:

I assume your word "not" is a typo?

Sorry, I meant NOT a top heavy plan. I've edited the original post.

Free advice is worth what you paid for it. Do not rely on the information provided in this post for any purpose, including (but not limited to): tax planning, compliance with ERISA or the IRC, investing or other forms of fortune-telling, bird identification, relationship advice, or spiritual guidance.

Corey B. Zeller, MSEA, CPC, QPA, QKA
Preferred Pension Planning Corp.
corey@pppc.co

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4 minutes ago, Belgarath said:

I was actually referring to a plan that specifies, say, 3 month eligibility for deferrals, and 1 YOS for safe harbor. Probably should have worded it better! Such a plan loses its automatic TH exemption, right?

Yes, this was the IRS's holding in rev. rul. 2004-13.

Free advice is worth what you paid for it. Do not rely on the information provided in this post for any purpose, including (but not limited to): tax planning, compliance with ERISA or the IRC, investing or other forms of fortune-telling, bird identification, relationship advice, or spiritual guidance.

Corey B. Zeller, MSEA, CPC, QPA, QKA
Preferred Pension Planning Corp.
corey@pppc.co

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