Cross Testing and Terminated Participants

[Kattdogg12]

So, every day I find something that I thought I knew and now question my entire life.  

Most of our safe harbor plans we write with no hours or last day requirement for the new comparability profit sharing to allow for flexibility (they have to get the gateway anyway for SHNEC). I am now questioning a safe harbor match plan with new comparability PS.  We sometimes don't give the PS to HCEs (spouses, non-owners) and terminated employees.  As long as it passes, we figure it's ok.  I went down a rabbit hole today with chatgpt and he/she/it told me that if the SPD is explicit in saying they will receive a PS, then they have to receive it. 

This is what the SPD says: Discretionary Employer Contribution formula. We will decide each year how much, if any, we will contribute to the Plan. Since this Employer Contribution is discretionary, we may decide not to make an Employer Contribution for a given year. We may decide to give a different contribution to each eligible participant under the Plan. The Employer Contribution may be determined as a percentage of compensation or as a dollar amount. We will inform you of the amount of your Employer Contribution once we determine how much we will be contributing for the year.

Employer Contributions. Under the Plan, as amended, you do not have to satisfy any additional allocation conditions under the Plan. Thus, you will be entitled to share in any Employer Contributions we make to the Plan if you satisfy the eligibility conditions applicable to Employer Contributions regardless of how many hours you work during the year or whether you terminate employment during the year.

 If this is a SHM plan - do we have to give a PS to terminated participants OR HCEs as long as we pass the required testing (401(a)(4), 410(b), TH)?  I

Thanks!

[CuseFan]

The SPD is not the Plan Document although care should be taken as not to mislead. I do not think your SPD is misleading but the language could be tightened up.

17 hours ago, Kattdogg12 said:

Employer Contributions. Under the Plan, as amended, you do not have to satisfy any additional allocation conditions under the Plan.

I would suggest adding "to receive any Employer Contribution we may decide to give you." and could add "such as..."

Or, at the start of second paragraph, begin "If we decide to make an Employer Contribution for you, ..."

I do not think you are obligated to give such people a contribution unless required for TH, which could then trigger gateway.

Also, these people are included in coverage and nondiscrimination (as zeroes) regardless of hours or termination because neither condition factors into them getting zero PS.

The SPD says "we will inform you" - which could come in a variety of forms (letter, statement, etc.).

[BG5150]

What is the new comp formula?  If it's everyone in their own group, then it's up to the ER who will get a PS and how much (subject to the testing limits, of course).  If it's the grouping method, you need to allocate the appropriate amount to everyone in each group.

Don't use Chat/gpt.  It can point you in the right direction, but the answers are still suspect.

We had someone here use it to determine eligibility of a rehire and it got it all wrong.