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Are QNEC and Employer Non-Elective Contributions the same thing?


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4 replies to this topic

#1 oneman546

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Posted 22 September 2010 - 05:21 PM

Hi,


Is Qualified Non-Elective Contributions (QNEC) synonymous with Employer Non-Elective Contributions in a Safe Harbor 401K?

Our company 401K Safe Harbor Notice states:

“… your Employer will make a fully-vested Safe Harbor Non-Elective Contribution to all eligible Participants equal to 3% of compensation…”

It goes on to state:

“The Employer Non-Elective Contributions that may be made to the Plan are subject to the following vesting schedule: 100% vested after 2 years.”

My benefits adviser in HR is telling me that we have QNEC contributions that are fully vested at enrollment and that the company doesn't make Employer Non-Elective contributions. However the Safe Harbor notice that she sent me doesn't mention QNEC at all or anything about being fully vested at enrollment.

Is there a difference between the two or is she uninformed?

Thanks,
Bryan

#2 Matthew Gouaux

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Posted 22 September 2010 - 05:47 PM

Bryan, the nonelective employer contributions are more commonly known as profit sharing contributions and may be subject to a vesting schedule. QNECs, or Qualified Nonelective Contributions, must be 100% vested at all times.

I hope that helps.
Matthew Gouaux
Trucker Huss, APC
mgouaux@truckerhuss.com
415-788-3111

This comment is for informational purposes only and is general in nature. It should not be relied upon as legal advice and is not the substitute for legal advice or opinion in a particular case.

#3 Bird

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Posted 23 September 2010 - 05:56 AM

“… your Employer will make a fully-vested Safe Harbor Non-Elective Contribution to all eligible Participants equal to 3% of compensation…”


That's your Safe Harbor QNEC. It doesn't surprise me that a notice doesn't call it a QNEC, but the notice should say that it is 100% vested.

“The Employer Non-Elective Contributions that may be made to the Plan are subject to the following vesting schedule: 100% vested after 2 years.”


As noted, that's commonly called "profit sharing."

The terminology basically stinks, as there are other types of QNECs that could be made to a plan, and "profit sharing" generally has nothing to do with profits any more. And "Non-Elective" seems to imply that it is required, which it is for the 3% SHNEC, but isn't for Employer Non-Elective (profit sharing).

#4 Tom Poje

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Posted 23 September 2010 - 07:11 AM

you have a couple of things going on and they can get confusing.

there is an animal that exists called a non-elective contribution.
you indicated this is 100% vested after 2 years. The plan could have a schedule that starts at 20% after 2 years gradually reaching 100% after 6 years.

a qualified nonelective contribution is commonly referred to as a QNEC.
amongst other things, what makes them Qualified is that they are 100% vested when deposited.

in a safe harbor plan (e.g. your plan provides a 3% SHNEC (my term, just so it doesn't get confused with QNEC)) the plan also gets a free ride on the ADP test, which a regular QNEC doesn't provide.

so every SHNEC is a QNEC, but not every QNEC is a SHNEC.

bah. I must find a way to stop filing dead lines from coming


#5 Guest_named_Sieve_*

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Posted 23 September 2010 - 11:44 AM

In a QACA, the SH contributions are vested over 2 years, but they still are, as per the regs, QNECs--they just are subject to a slower vesting schedule. (See Treas. Reg. Section 1.401(k)-3(a)(2) & -3(j) & -3(k).) This sounds like a QACA.