401K Safe Harbor Match with Discretionary PS

All of our 401K SH plans are the safe harbor non-elective, so this situation has not come up yet.

Our client maintains a 401K with safe harbor match, 100% up to 4% of compensation.

To date, all eligible have deferred, for next year there will be one participant who will not be deferring.

Q. If a participant does not defer, obviously they need to get the 3% non-elective if he meets age/svc; if the client makes a discretionary PS contribution greater than 3% (minimum is 5% to pass gateway for the new comparability profit sharing portion), is the full 5% contribution considered to ALL be profit sharing subject to vesting schedule, or does 3% need to be at 100% and the remaining 2% subject to the vesting schedule?

9 hours ago, thepensionmaven said:

If a participant does not defer, obviously they need to get the 3% non-elective if he meets age/svc; if the client makes a discretionary PS contribution greater than 3% (minimum is 5% to pass gateway for the new comparability profit sharing portion), is the full 5% contribution considered to ALL be profit sharing subject to vesting schedule, or does 3% need to be at 100% and the remaining 2% subject to the vesting schedule?

I'm not sure what you mean by the bolded. 

The only people who must get at least a gateway are those who are getting a 401(a) contribution.  Match does not count.  So unless the plan is top heavy, that person doesn't HAVE to get something if they are in a class that is receiving zero PS. However, if the sponsor wants to give them something, then they will ahve to get at least the gateway.

Any nonelective 401(a) contribution (except a QNEC) is subject to the plan's vesting schedule for that money type.

Remember, if the sponsor makes a PS, they lose the TH pass due to the SHMAC.  If the plan is TH and that person must get the TH contrib, but doesn't meet the criteria for a PS, they still must get the gateway.

OK,  I think I did not post correctly.

Plan is top heavy.

Client maintains a SHM 401(k) with optional PS, which happens to be a new comp. formula, let's say Group 1 - owners,  Group 2 - all other eligible employees.  Group 1 - max , Group 2, whatever needs to pass 40(a)(4), let's say 5%

All employees meet age/service.

One participant defers, gets 4% of W-2 match plus allocation of 5% profit sharing.

Another participant does NOT defer, obviously no match.  She gets the 5% profit sharing.

My question is - participant must receive the 3% top heavy, 100% vested.  Since the PS contribution is 5%, is the additional 2% subject to vesting schedule, let's say 2/20.

Not sure, all my SHM are stand-alone up to this point.

2 minutes ago, thepensionmaven said:

My question is - participant must receive the 3% top heavy, 100% vested.  Since the PS contribution is 5%, is the additional 2% subject to vesting schedule, let's say 2/20.

 

Is the top heavy vesting schedule really 100% and the regular vesting schedule isn't that would be unusual. In any case, if it IS true, then when the plan becomes top heavy, all of the profit sharing contributions are then 100% vested. You don't have a vesting schedule for part of the profit sharing contribution and another one for another part.

The top heavy vesting schedule same as non-top heavy vesting schedule, 2/20.

In the case of the participant who deferred, she received a 4% of W-2 match and a 5% profit sharing contribution; and the profit sharing contribution is subject to the 2/20 vesting.  The balance was forfeited.

In the case of the person that did not defer and received the 5% contribution, she left after 1 year and the whole 5% is forfeitable?

1 hour ago, thepensionmaven said:

The top heavy vesting schedule same as non-top heavy vesting schedule, 2/20.

In the case of the participant who deferred, she received a 4% of W-2 match and a 5% profit sharing contribution; and the profit sharing contribution is subject to the 2/20 vesting.  The balance was forfeited.

In the case of the person that did not defer and received the 5% contribution, she left after 1 year and the whole 5% is forfeitable?

Correct.

Thanks, maybe I'm having a senior moment, but are you saying that if the participant is not deferring, the 3% is treated as a "non-safe harbor", meaning top heavy only and thus has nothing to do with the 100% unless the top heavy vesting schedule was 100%?

Forget about the 3%.  You are making a PS contribution of 5%.  That is more than 3% so TH is satisfied.  It (3%) does not get special treatment.

37 minutes ago, thepensionmaven said:

Thanks, maybe I'm having a senior moment, but are you saying that if the participant is not deferring, the 3% is treated as a "non-safe harbor", meaning top heavy only and thus has nothing to do with the 100% unless the top heavy vesting schedule was 100%?

 

I think you are simply confusing the fact that most of your plans use the SFNEC to satisfy safe harbor which also covers your TH minimum in most case. But since that is SFNEC it has to be 100% vested. Which you then typically use as the floor for your cross testing.

Since you are using SHM in this plan the match is 100% vested but the other employer PS contributions are subject to the Plan vesting schedule. The fact that you are thinking about PS contrib "covering" different buckets like TH and Gateway for testing is irrelevant to the bigger picture that is still a single PS source.

Thanks to all for the concise clarification.