Dougsbpc Posted September 16 Posted September 16 Have a 401(k) plan that is a safe harbor plan with salary deferrals, non-elective safe harbor and profit sharing. Would there be any problems or additional testing requirements if the plan had the following eligibility requirements: Salary Deferrals - immediate entry after working 100 hours. Safe Harbor Nonelective - immediate entry after working 1,000 hours. Profit Sharing - immediate entry after working 1,000 hours. In other words, they want almost all employees to be able to fund salary deferrals soon after being hired but only want to provide employer contributions to those who who are full time and almost full time. Thanks.
Lou S. Posted September 16 Posted September 16 That sounds workable, even under the long term part time (LTPT) rules. You are just bringing in the LTPT employees earlier than the statutory limit of how long you can exclude them for 401k. The IRS doesn't generally have any problem when you are being less restrictive. Just need to have the document and your LTPT amendment match what you want it to for eligibility.
John Feldt ERPA CPC QPA Posted September 17 Posted September 17 Is there any intent or need for the plan to be exempt from top-heavy? if yes, then allowing deferrals prior to safe harbor entry can be a problem with these entry requirements. The OEEs won’t get TH, but some non-OEEs might.
justanotheradmin Posted September 18 Posted September 18 Are the hours going to be counted forever? What if it takes someone three years to reach 1,000 hours, do they want the person let for the safe harbor and profit sharing at that point? austin3515 1 I'm a stranger on the internet. Nothing I write is tax or legal advice. I'd like a witty saying here, but I don't have any. When in doubt, what does the plan document say?
justanotheradmin Posted September 18 Posted September 18 and yes there will be additional testing requirements. the EE who are eligible for deferrals, but not for SH, generally need to be tested for ADP/ACP. If there are no HCE in that testing group its usually not a problem, but is another thing to be aware of and perform each year. I'm a stranger on the internet. Nothing I write is tax or legal advice. I'd like a witty saying here, but I don't have any. When in doubt, what does the plan document say?
austin3515 Posted September 18 Posted September 18 I agree with justanotheradmin. If the 100 hours is required in the first 12 months, you need to be careful because your document likely says "or else 1,000 hours in a plan year" and that's when the LTPT stuff will kick in. Please clarify. Austin Powers, CPA, QPA, ERPA
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