Cite for not being able to require 2 years for eligibility for safe-ha

[John A]

For a 401(k) plan, Code Section 401(k)(2)(D) makes it pretty clear that the cash or deferred arrangement cannot require 2 years of service for eligibility to participate in the cash or deferred arrangement. Is there any cite that makes it clear that a safe-harbor 401(k) plan cannot require 2 years of service to be eligible to receive the nonelective (3%) safe harbor contribution?

[R. Butler]

IRS Notice 98-52 states that the contribution requirement is satisfied if the employer is required to make a safe harbor nonelective contribution on behalf of each NHCE who is an "eligible employee". Although I don't know of anything that states it verbatim, it is my understanding that "eligible employee" refers to individuals eligible to make deferrals.

[Alf]

Section IV.A. of 98-52 provides that terms used in 98-52 that are defined in the 401(k) regulations have the same meaning as in the regulations for purposes of 98-52. Section 1.401(k)-1(g)(4) of the regulations defines eligible employee as an employee who is directly or indirectly eligible to make a cash or deferred election under the plan.

[Bill Berke]

I view safe harbor as an alternative to the ADP testing requirement. It is not a change in the 401k rules. Ergo, the one year requirement applies.