Does the new employee needs SH for entering the plan early?

[Jakyasar]

Not a 401k expert and the client asked the following:

Calendar 401k plan with 3% NESH and PS provisions, it is combined with a cash balance plan. Plans are top heavy and top heavy is provided under the 401k plan.

Eligibility is age 21/1 year and dual entry

Hiring a new employee on 10/1/2026 and sponsor wants to amend the 401k plan so that the employee can start deferring immediately.

Not amending the CB plan, just the 401k provision.

Does this employee also need to get SH i.e. ADP testing would be an issue if not? Possible top heavy issue too, at least in my opinion. Not providing PS allocation.

Thank you

[Bri]

Are you testing otherwise excludables separately or at least carving out? 

Usually no need for that subgroup to utilize a safe harbor.  Like, if everyone in the "main test" is getting the SH and probably none of the OEXs, then their OEX ADP test might not use a SH but should pass without HCEs.

And who gives OEXs top heavy minimums any more, really? 

[Jakyasar]

Thank you for your input, yes I would be testing OEX separately. Everyone in the main test is getting whatever they need to.

Forgot about the no t/h requirement for OEX but I was mostly concerned about the ADP test.

[CuseFan]

Just make sure that the plan document would not inadvertently make this person eligible for the SH (i.e., the plan says whoever is eligible to defer gets the SH). You may need to specifically provide 21 & 1 dual entry for the SH.

[Artie M]

agree with above.  In your facts, the new employee presumably is an NHCE for 2026 and sounds like the only person in the early-entry component. If properly drafted, that component should have no meaningful ADP problem because there is no HCE in it. So you should be able to let them defer immediately without giving them the 3% NESH, but only if the amendment deliberately creates that otherwise-excludable/separate-testing structure.  see @CuseFan 

I haven't scrutinized the TH rules recently but not sure there isn't an issue if the plan is already TH.  I thought that if an OEX is actually made a participant in the TH plan then they are not excludable.  one of the Reg 416 Q&As says that every non key who is a participant in the TH plan must receive the minimum.  I remember one that says something to the effect that if employed at year end they get it even if fail to complete 1,000 hrs.  I think there is a distinction... if don't admit early, no DC TH minimum... if amend the plan to let them defer immediately, they become a participant even though not age 21/1year.  Agree that they can separately test for ADP but not sure that gets them out of TH.  If in TH then, also its 3% of full year comp and not just the part year comp.  This then gets you to economically no difference in excluding them.  also combined DB/DC safe haven minimum should apply since they don't participate in DC plan... I think....  I point you to the 416 regs...  I definitely could be wrong but always look at the source authorities.