Safe Harbor Matching Contributions - Two Basic Questions

Good morning!  Just want to make sure there's no issues with another Plan we are taking over:

1) They fund their Safe Harbor Match on a payroll-by-payroll basis.  If someone opts to start contributing in the middle of the year, can they simply match from that point forward (calculated on a payroll basis) or do they have to do the calculation on the full years salary and true the participant up?

2) The prior TPA allowed them to include commission compensation for the sales staff, but exclude it for everyone else.  Is that something people have seen before, where the definition of compensation is different, based on the class of employee?

Thanks in advance everyone!

Sorry about your Mets after this weekend....

Truing up the match depends on:

a) What does the plan document say about the calculation of the match?  If THAT says it's a payroll by payroll calculation, then there's no truing up.  If the plan says it's an annual calculation, but it just happens that the client funds it ongoing week to week, then a true-up will be necessary.

b)  Is the person opting to contribute partway through the year someone who was already eligible all year long, or is the midyear point their actual plan entry date?  This only matters if the answer to (a) is that you have to true up, and then if so, you'd go back to the later of 1/1 or their actual plan entry date.

c) Whether the plan defines compensation as the full year's worth, or just from after the participant's entry date.

As for the compensation, it's not unheard of to adjust  like that, but you obviously have to run a 414(s) compensation inclusion ratio test.  Who, besides sales staff, would have commissions, though?  You have to sell something to get a commission 

Ugh, painful!

So if the document says it is funded on a payroll-by-payroll basis (which it does), we can just move on.  Thanks!

51 minutes ago, Bri said:

Sorry about your Mets after this weekend....

Truing up the match depends on:

a) What does the plan document say about the calculation of the match?  If THAT says it's a payroll by payroll calculation, then there's no truing up.  If the plan says it's an annual calculation, but it just happens that the client funds it ongoing week to week, then a true-up will be necessary.

b)  Is the person opting to contribute partway through the year someone who was already eligible all year long, or is the midyear point their actual plan entry date?  This only matters if the answer to (a) is that you have to true up, and then if so, you'd go back to the later of 1/1 or their actual plan entry date.

c) Whether the plan defines compensation as the full year's worth, or just from after the participant's entry date.

As for the compensation, it's not unheard of to adjust  like that, but you obviously have to run a 414(s) compensation inclusion ratio test.  Who, besides sales staff, would have commissions, though?  You have to sell something to get a commission 

So just to confirm, with that selected there's no true-up, correct?  Just want to make sure there are no mistakes.

55 minutes ago, Bri said:

Sorry about your Mets after this weekend....

Truing up the match depends on:

a) What does the plan document say about the calculation of the match?  If THAT says it's a payroll by payroll calculation, then there's no truing up.  If the plan says it's an annual calculation, but it just happens that the client funds it ongoing week to week, then a true-up will be necessary.

b)  Is the person opting to contribute partway through the year someone who was already eligible all year long, or is the midyear point their actual plan entry date?  This only matters if the answer to (a) is that you have to true up, and then if so, you'd go back to the later of 1/1 or their actual plan entry date.

c) Whether the plan defines compensation as the full year's worth, or just from after the participant's entry date.

As for the compensation, it's not unheard of to adjust  like that, but you obviously have to run a 414(s) compensation inclusion ratio test.  Who, besides sales staff, would have commissions, though?  You have to sell something to get a commission 

There's no true-up required.  I have seen documents that give the sponsor the option to true up (nondiscirminatorily) but since the allocation period is specifically each payroll, no true-up would come into play normally.

3 hours ago, metsfan026 said:

2) The prior TPA allowed them to include commission compensation for the sales staff, but exclude it for everyone else.  Is that something people have seen before, where the definition of compensation is different, based on the class of employee?

Thanks in advance everyone!

I would make sure the document is written to define compensation this way and you do need to run a 414(s) test on compensation as Bri points out.

On 10/4/2022 at 10:22 AM, metsfan026 said:

2) The prior TPA allowed them to include commission compensation for the sales staff, but exclude it for everyone else.  Is that something people have seen before, where the definition of compensation is different, based on the class of employee?

Given that the plan is a 401(k) safe harbor plan, the definition of compensation used to allocation compensation must satisfy Code Section 414(s).

This client has a major problem, at least if someone from outside the sales staff can receive commission compensation.  A 414(s) definition of compensation, even one that satisfies an arithmetic test instead of a pre-approved definition, must be consistent for all employees.  See Treas. Reg. Section 1.414(s)-1(b)(2).  I would direct the client to work with legal counsel on this issue.