Hours requirement... got me thinking

[Basically]

I have a new plan, everyone is part time.  It's a SH Match.  To be eligible to defer you only need to work for the company for 6 months, no  hour requirement. CAN the SH eligibility have a hour requirement?  will that screw everything up?  My ADP test?

[Bri]

First thought was the potential loss of a TH exemption, but if everyone's part time that sounds perhaps unlikely.

And the eligibility cutoff doesn't align with who'd you be able to segregate out as otherwise excludable employees for ADP testing purposes.

[Basically]

A SH match contribution is not dependent on hours of service... correct?   if an employee is eligible to defer then they will receive a SH Match ...period.  With regards to eligibility, it's only for the NEC and EE contributions that you could have in the design an hour requirement... right?

With regards to TH, a plan that has no NEC contribution in the design is exempt from TH ... correct?

[C. B. Zeller]

39 minutes ago, Basically said:

A SH match contribution is not dependent on hours of service... correct? 

A safe harbor match can not require hours in order to receive it on a year-by-year basis, but it can have a service requirement for initial eligibility.

39 minutes ago, Basically said:

if an employee is eligible to defer then they will receive a SH Match ...period.

No, you can have different eligibility for deferrals and safe harbor match. The major consequence of this design is the loss of the top heavy exemption, as Bri noted earlier. Under this design you are technically doing an ADP test for the disaggregated portion of the plan covering otherwise excludable employees, since that group is not covered by the safe harbor match. It is unlikely that there would be any otherwise excludable HCEs, so that group should always pass the test automatically. But it's something to be aware of.

39 minutes ago, Basically said:

With regards to eligibility, it's only for the NEC and EE contributions that you could have in the design an hour requirement... right?

No, you can have a service (hours or elapsed time) for initial eligibility for matching contributions, including safe harbor matching contributions. If your document uses a checkbox-style adoption agreement, there are probably options for this.

39 minutes ago, Basically said:

With regards to TH, a plan that has no NEC contribution in the design is exempt from TH ... correct?

A plan that consists solely of deferrals and matching contributions which satisfy the ADP and ACP safe harbors is exempt from top heavy. This is determined based on the contributions that are actually made to the plan on a year-by-year basis. A plan can permit non-elective contributions but will not lose its top heavy exemption unless non-elective contributions are actually made (or forfeitures allocated) in a given year. Likewise, making non-safe harbor matching contributions will also cause the plan to lose its top heavy exemption.

[Belgarath]

1 minute ago, C. B. Zeller said:

A plan that consists solely of deferrals and matching contributions which satisfy the ADP and ACP safe harbors is exempt from top heavy. This is determined based on the contributions that are actually made to the plan on a year-by-year basis. A plan can permit non-elective contributions but will not lose its top heavy exemption unless non-elective contributions are actually made (or forfeitures allocated) in a given year. Likewise, making non-safe harbor matching contributions will also cause the plan to lose its top heavy exemption.

Pay particular attention to CB's comments here, especially the allocation of forfeitures part. I've seen plans where plan sponsors got badly burned on this.

[Basically]

15 minutes ago, C. B. Zeller said:

A plan can permit non-elective contributions but will not lose its top heavy exemption unless non-elective contributions are actually made (or forfeitures allocated) in a given year.

This is a year by year application... If only EE deferrals and SH match, no NEC in 2024, then no sweating a TH requirement?  

I like to design a plan as simple as possible... not going to have all kinds of different kookie hour requirements.  

Otherwise Excludable employees... Always makes me think hard to get it right.  I need a good publication that will explain clearly and simply this group of employees and how they affect testing.  In the end does it come down to the plan design?