Different Entry Dates - PS/401(k)

I just want to make sure I'm not overthinking this.  There's no issue with a Plan design of:

Profit Sharing (and Cash Balance) - Immediate Entry
401(k)/Safe Harbor - 21 & 6 mos.

Obviously we'd have to pass all testing, and as far as I see there are no complications/issues.  They'll just have to make a Profit Sharing contribution for everyone, which will be subject to vesting, but wouldn't need to give Safe Harbor. 

I'm not overthinking this, right?

I don't see an issue with this design necessarily, although it is a little unusual.

What is the goal of using this design? If it's to pass nondiscrimination testing by including short-service employees who will never become vested, that is generally frowned upon even if the numeric tests are all satisfied.

It's quirky.  Take a good look at the demographics so the plan sponsor is comfortable with potential operational issues.  

• What is the risk of the plan being top heavy?
• What is the anticipated allocation formula?
• Are there significant number of employees under age 21?
• Will Average Benefit Testing be needed?
• Are there Long Term Part Time employees?
• Is this a new plan or a new 401(k) feature that will need to be an EACA?

There probably other questions and the answers may all prove to be inconsequential, but quirky designs can lead to quirky operational issues.

Is the cash balance plan subject to PBGC?

3 minutes ago, david rigby said:

Is the cash balance plan subject to PBGC?

Yes

5 minutes ago, Paul I said:

It's quirky.  Take a good look at the demographics so the plan sponsor is comfortable with potential operational issues.  

• What is the risk of the plan being top heavy?
• What is the anticipated allocation formula?
• Are there significant number of employees under age 21?
• Will Average Benefit Testing be needed?
• Are there Long Term Part Time employees?
• Is this a new plan or a new 401(k) feature that will need to be an EACA?

There probably other questions and the answers may all prove to be inconsequential, but quirky designs can lead to quirky operational issues.

- Plan is already Top-Heavy
- It's a combo Plan, so we are giving 7.5% to the Non-Highly
- No on the Under 21
- There aren't currently not long-term part-timers
- 401(k) is already in place with the 21 & 1

4 hours ago, C. B. Zeller said:

If it's to pass nondiscrimination testing by including short-service employees who will never become vested, that is generally frowned upon even if the numeric tests are all satisfied.

I would agree with this if was to the exclusion of longer tenured and higher-paid employees, which IRS called out as abusive years ago. However, including everyone should not be an issue. Having fully vested K & SH come with a waiting period so that administratively you are not dealing with small payouts for short service terminations makes sense. MAYBE IRS would take issue if the employer had a lot of annual turnover within that 6-month eligibility period and it certainly wouldn't hurt getting legal counsel opinion of the provision within the specific context of that IRS abusive practice guidance.

Will some employees be accruing a top-heavy minimum life annuity benefit within the CB plan until they become eligible for the 401(k) plan? Not terrible, but if so, that is a bit annoying.