A small firm (about 30 employees) has a safe harbor plan where the 3% nonelective safe harbor contribution is made. My understanding is the top heavy testing is deemed to pass for a safe harbor plan, but what if the firm elects to make additional profit sharing contributions? Under what circumstances, if any, would top heavy testing need to be done and how would the profit sharing contribution need to be allocated to avoid makin the plan top heavy (which it would be)?

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CEO (a highly compensated employee) and company are negotiating employment agreement. The parties wish to provide that, if the CEO opts out of the company's medical plan, the CEO would receive additional cash compensation in the amount of the company's cost of coverage for that plan. Assume that the individual's compensation is $200,000 plus he would receive an additional $20,000 if he opts out of coverage. The company does not offer the opt-out/cash-out benefit to other employees. I am fairly confident that this arrangement will fail the contributions and benefits portion of the cafeteria plan nondiscrimination tests set forth in 1.125-7 because it discriminates in favor of HCEs with respect to employer contributions for total benefits (which includes taxable benefits). My question is, what is the effect of failing the nondiscrimination tests in this circumstance? 1.125-7(m) provides that in such a case, the HCE must include in gross income "the value of the taxable benefit with the greatest value that the employee could have elected to receive." In this case, whether the plan is discriminatory or not discriminatory, wouldn't the CEO have gross income in the amount of $220,000 either way? That would mean that failing the nondiscrimination tests would be meaningless, wouldn't it? I recognize that the agreement can be structured differently to give the CEO the same economic benefit as the above proposed structure but I wonder if anyone has any thoughts on the effect of this structure.

My client intends that vesting service starts on participation date, not hire date. I referenced the plan document which specifies YOS starting with employment date, however, I cannot find anything that specifically states that participant date cannot be the start date for vesting. Any ideas?

For the purpose of this question, I am assuming that the only death benefit being provided in a DB plan is the required QPSA (let's say it is equal to the plans QJSA of 50% J&S) and the QPSA is fully subsidized. No other death benefit in the plan. Per Treasury Reg. 1.401(a)-20 Q&A 37, a plan is NOT required to provide the written QPSA explanation if [1] the QPSA is fully subsidized and [2] it "does not allow a participant to waive such QPSA or to select a non spouse beneficiary." I think most plans in this situation would make the QPSA mandatory (not allow a waiver) and would therefor not need to provide the QPSA explanation. However, is a plan in this situation (again, where the QPSA is the only death benefit in the plan and it is fully subsidized) permitted to allow the participant (with spousal consent) to waive the QPSA in favor of a non spouse beneficiary? In other words -- can a DB plan be designed where the only death benefit provided in the plan is a fully subsidized QPSA to married participants -- but it allows the participant (with spousal consent) to waive the QPSA in order to make the QPSA payable to a non spouse beneficiary? Notice 97‑10 provides sample language for a spouse's waiver of the QPSA, and the example in Appendix B, Question 2, Option B seems to indicate that yes -- the spouse can give up all (or part) of the QPSA benefit and it will be payable "to another person" "often called a beneficiary". Appendix B, Question 4, Option C provides a scenario where the spouse can sign a "general consent agreement" and the sample language says "If you sign this agreement, your spouse can choose the beneficiary who will receive the QPSA..." However the DB Answer Book states the following:

Q 21:98, Can a participant name a person other than his or her spouse as the QPSA beneficiary? No. The QPSA is payable only to a surviving spouse (or former spouse under a QDRO) (see chapter 23). Example. With her husband's consent, Celia named her daughter as the QPSA beneficiary. After Celia died, the plan refused to pay a survivor's benefit to her daughter, saying the plan provided QPSAs only for surviving spouses. The court upheld the plan administrator's determination. [Butler v. Encyclopedia Brittanica Inc, 18 Employee Benefits Cas. (BNA) 2589 (7th Cir. 1994)]

Now, perhaps this question is assuming that the plan requires the QPSA to be mandatory and does not allow the participant to waive the QPSA in favor of a non spouse beneficiary (again, going back to 1.401(a)-20 Q&A 37). If that's the case then yes, I would agree that a participant cannot name a person other than his or his spouse as the QPSA beneficiary, as the plan does not allow such waiver. But again, it seems that a plan is permitted to allow a participant to name a person other than his or her spouse as the QPSA beneficiary. Thoughts?

I have used Omni AdminWeb and OmniPlus but I see a lot of employers use Relius. Is there a difference in the two programs and their functionality?