401k and ESOP plan

[TH 401k]

The attached image is sample. I'm doing compliance Testing for xyz 401k plan and under safe harbor non elective, 3% SHNE is selected along with the comment mentioned under other plan that xyz ESOP plan name. However, I'm confused whether I have to allocate 3 percent SHNE for employees in my xyz 401k plan or else it denotes ESOP plan. 

Is there any IRS provision or regulations which is giving clear definition for this section in adoption agreement. What is the next to whether to allocate SHNE in 401k plan or ESOP plan.

ESOP in doing by another. Here by taking assumption I'm completing the plan that the plan is not top heavy and there is non of them exceeding the annual addition.

[ESOP Guy]

I am not 100% sure I fully understand the first paragraph.  But if I do I don't think you will find clear guidance in the regulations.  

My best guess based on what you wrote I would stop and see if you can get a call with client, ESOP TPA and yourself.   

A SHNE can go into an ESOP and that TPA needs to know how to do it right.   They have to treat it like it is a SHNE and all the related restrictions.  Or it can be done in the 401(k) plan and if the combined plan are Top Heavy for example the ESOP TPA needs to know about the SHNE is for that and combined 415 obviously.  

This stuff take good coordination and communication between the 401(k) TPA, ESOP TPA and client or it will go wrong badly.  

I am going to say it again there needs to be a conversation here to make sure everyone is on the same page and people need to get used to communicating annually to make sure everyone understands what is happening in all the plans.   This is especially true if the SHNE is being paid to the ESOP.   

[rocknrolls2]

The IRS has an ESOP :Listing of Required Modifications on its website. It is accessible via this link. https://www.irs.gov/pub/irs-tege/esop_lrm1017.pdf It might shed some light to help you resolve your question.

[jsample]

 

I would also check the Basic Plan Document and/or the ESOP document to see if there are any requirements the Other Plan needs to have in order to accept the SHNE.

For example, what if the eligibility requirements are different in both plans?  If the SHCE goes into the ESOP, you have to make sure the eligibility to receive the SHNE under the 401k plan eligibility requirements are met in the ESOP.  For example, if the 401k has 3 months for eligibility and the ESOP has 12 months - if an employee is hired 7/1/2024, they would enter the 401k 10/1/2024 but not be eligible for the ESOP in 2024.  They would need to receive the SHNE contribution, so ESOP guy is correct, conversation and planning needs to be done to make sure the SHNE is received by all eligible participants in the 401k.