Eligibility for 401(k) & Safe Harbor Match

I have a client that wants to shorten the eligibility for 401(k) deferrals to 60 days, but leave the Safe Harbor Match at 1 year.  I would think this would cause an issue with the testing, but I wanted to make sure I wasn't overthinking things.

Thanks in advance!

The only testing issue I see is determining whether the timing of the amendment is discriminatory under 1.401(a)(4). I don't see this as an amendment to the formula that changes matching contributions, so I think Notice 2016-16 is not an issue. 

Keep in mind that this will cause the plan to lose its top heavy exemption, if that's a concern for this client.

Also kills the automatic top heavy exemption, which is not a big deal for lots of plans, as they either aren't top heavy, or are making other contributions so that the automatic exemption isn't applicable anyway. But sometimes is an issue.

3 minutes ago, Belgarath said:

Also kills the automatic top heavy exemption, which is not a big deal for lots of plans, as they either aren't top heavy, or are making other contributions so that the automatic exemption isn't applicable anyway. But sometimes is an issue.

Thanks!  The Plan isn't currently Top Heavy, so that's not an issue.

It was more the idea of people deferring money, but not getting the ADP Safe Harbor Match.  I don't believe they actually fail ADP Testing, it was more a safety thing setup at the beginning.  So that wouldn't be an issue?

The only conceivable testing issue (absent top-heavy) is some thing like having the owner's kid come into the plan and be an HCE right from the get go.  You would have to run an ADP test on the non-safe harbor portion of the plan.  But that should be pretty rare.  Even more rare than that I'd say is someone being an HCE based on comp alone before they were eligible but that is possible.

It should definitely not be an issue for coverage testing purposes since employees who have not yet been credited with one year of service are tested separately for coverage purposes. Moreover, since those folks are NHCEs for the first year (with the exception suggested by Austin 3515), it should be a no brainer. Most importantly, however, deferrals are tested separately for coverage purposes than are employer contributions.