3% safe harbor for union employees

[jkharvey]

The plan provides that union employees are eligible to make elective deferrals, but are not eligible to receive a matching contribution. For purposes of the 3% 401(k) safe harbor contributions, it seems to me that since they are eligible to defer, the union employees should receive the 3%. Is this correct? The fact that they are excluded from the regular 401(k) testing, however, causes me to reconsider the requirement for them to receive the 3%.

[Alf]

They should receive the safeharbor contribution. Notice 98-52 incorporates the definitions in the regulations, which don't allow you to exclude union employees if they are eligible. That being the case, are you sure that you can exclude union employees from the ADP test?

[jkharvey]

No, I'm not sure. That's just the way it has been done in the past. Thanks for your response.

[M R Bernardin]

Take a look at Section IX.B.1 of Notice 98-52, where it states that a plan that includes a CODA covering both collectively bargained employees and noncollectively bargained employees is treated as two separate plans for purposes of Section 401(k) and the ADP test safe harbor need not be satisfied with respect to both plans in order for one of the plans to take advantage of the ADP test safe harbor. Thus, I think the answer to your question is the union employees need not receive the 3%, if the plan language excludes them from it. And you should be running the ADP test on the union employees.

[jkharvey]

OK. Now, I'm a bit confused. If the plan provides that the union employees may make elective deferrals (in other words, the plan does not specifically exclude the union employees), then they must receive the safe harbor 3%. If the plan does not allow the union ees to defer, they do not have to receive the 3%. Am I correct here?

The ADP test to which your refer, is that for the part of the plan not using the safe harbor 3%?

[M R Bernardin]

The union employees are entitled to the 3% safe harbor if the plan says that it is giving the 3% to all eligible employees, and does not contain an exception for union employees. In other words, the plan could say that only eligible non-union employees will receive the 3% (even though union employees are eligible to defer), but if it doesn't contain that type of language, then union employees should receive it. Yes, the ADP test is necessary only for the "plan" (i.e., the part of the plan) that is not using the safe harbor.

[jkharvey]

I think I've got it now. The 401(k) portion is disaggregated into two plans, union employees and nonunion employees. Each portion runs a separate ADP test. If the nonunion portion does not pass ADP, regular 401(k) corrections must be made. If the union portion does not pass, no corrections need be made, but if not corrected, the elective deferrals of the union participants are includible in income. 1.401(k)-1(f)(7)(iv).

This would mean that the safe harbor notice (and plan when amended to provide safe harbor language) would have to address the union employees separate from nonunion employees in terms of which group will receive the safe harbor 3%. If the union participants do not receive 3% safe harbor, the regular rule outlined above would apply with regards to ADP test.

Do I have this right?

[Noah]

I have a related question: if an employer has two unions and two bargaining units can one have a 3% employer contribution safe harbor and the other not? If someone has an answer could yo please provide a citation with it. Thank you!