3% Nonelective Safe Harbor & Nondiscrim

[Guest Zee_Moe]

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The Safe Harbor if 3% can be used in cross testing as long as integration is not imputed on it. This means a spread sheet to add different pieces together - 401(K) plus SH plus (PSP with integration) for ABPT, drop the 401k but keep SH for rate group test.

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Somebody posted the above message, I believe it was rcline46.

The posting concerns me, we pay a service company for legal advice and they provided us counsel such that:

SH is not included in the rate group/classification test but it is included in the ABPT?

Can I please get 2nd, 3rd, and 4th opinions?

Which way do you think? And where in the regs can I find documentation to back it up?

I am extremely new to cross-testing and very concerned that I may do it wrong.

All opinions welcomed!

Thank you - ZM

[Guest]

Your service provider has it right. The rate groups are based only on the employer allocation,e.g. a tiered allocation. If each rate group passes the ratio % test you can stop right there. But most likely you won't get 70% coverage in each rate group,so now you have to apply the average benefit test.The accrual /allocation rates in the average benefit % portion of the ABT must be based on all plans of the plan sponsor,including 401(k) and 401(m).Since the 3% SH is considered to be a (k) contribution it gets added in. Bear in mind that 401(k)and (m) plans usually can't be aggregated with other plans, but there is an exceptin to this rule for purposes of the ABT. If ypu wanto impute permitted disparity you can only do it on the empoyer allocation,not on the(k) contribution. Since the SH is considered to be a (k)contribution it has to be backed out of the disparity calculation as well.

[Guest]

Read Notice 98-52, in particular VIII B

Use of safe harbor nonelective contributions to satisfy other nondiscrimination tests.

[Note: just from the title of the paragraph you can use them to satisfy other tests]

'A safe harbor nonelective contribution used to satisfy the nonelective contribution requirement under sevtion V B 2 [ADP safe harbor] MAY ALSO BE TAKEN INTO ACCOUNT for purposes of determining whether the plan satisfies section 401(a)(4). Thus, these contributions are not subject to the limitations on QNECs under section 1.401(k)-1(B)(5)(ii), but are subject to the rules generally applicable to nonelective employer contributions under section 401(a)(4). [That is why I jokingly call them SHNECs to distinguish them from QNECs. there is a difference.] However...to the extent they are needed to satisfy the safe harbor contribution requirement of section V B, safe harbor nonelective contributions MAY NOT be taken into account under any plan for purposes of 401(l), including the imputation of permitted disparity under section 1.401(a)(4)-7.

emphasis mine as well as comments in[brackets]

[MWeddell]

Well, you've got two more opinions and they don't agree, so I guess we'll turn this into a survey question.

I agree with Tom Poje. One can take the 3% employer nonmatching safe harbor contribution into account in other 401(a)(4) testing as long as one doesn't use permitted disparity. This is different from the traditional QNECs where 401(a)(4) must pass both with and without the QNECs. The cite is in Tom's posting, noting that Notice 2000-3 didn't change that portion of Notice 98-52.

[AndyH]

There is no question in my mind that Tom is correct (as usual), and that he has cited the correct authority.

I have read this interpretation clear as day in at least 10 analyses of this subject.

[Guest]

Tom-You're right. I missed that one. Sorry and thank you.