Have a client considering the addition of 401(k) safe harbor language to his existing top heavy PSP. He is concerned about the financial commitment in lean years. Question: If we design the plan and the notice to commit the Safe Harbor contribution to only NHCE's, can we amend that provision during and/or after the plan year to include the HCE's?

As a solely safe harbor plan, appears that we don't have an issue with the HCE non-key employees not receiving a top heavy contribution in a plan year in which the HCE's are excluded from the safe harbor contribution.

Why not just take the "wait-and-see" approach, i.e., issue the notice that e/er MAY meet the safe harbor by providing 3% NEC, then issue the notice prior to year end as to whether or not the safe harbor contribution will be made....??? Also, what's the difference between having to fund the top heavy for all e/ee's and having to fund the 3% NEC for all e/ee's? (Could be that only non-key's receive the top heavy under the plan terms whereas all e/ee's would be entitled to the 3% NEC assuming you drafted for HCE's and NHCE's???? if so, the difference in funding would be 3% of the key HCE's compensation...???)

The reason we don't want to go the "maybe" route is because once the key employees defer, top heavy minimums are triggered unless we are "solely safe harbor". So we know from the beginning that we want to go the safe harbor route. There are a couple of $100,000 plus HCE's (not key) that could be expensive to fund in a lean year.

Yes, we could go the "maybe" route and have the keys hold off on deferrals until they are comfortable with the 3% for all. But we would rather allow everyone to defer, keys too, and just not commit to the HCE's up front.

Am I making sense? So back to my original question, is there a problem with amending the plan mid-year or after year-end to include the HCE's in the safe harbor contribution?

yes there is a problem - depending on what your notice says.
The new regs have made it clear you have to have language in the document, and not 'contingent, if the employer so desires'

the other option, as indicated would be to use the wait and see approach.

I suppose a third option would be to have safe harbor language in the document for NHCEs, and issue a maybe notice for HCEs. My mind can't handle the ramifications of that, but that should work. If the year isn't lean, then amend to include HCEs for that year only. Remeber you have up until 30 days before plan year end.

Interesting question. Always looking for stuff to throw into the Coverage and Nondiscrim answer Book. I am working on that now. maybe I will toss it in!

Why not just have a cross-tested-type design with the HCE's in a separate group? That way if you want to end up giving them 3%, you can do that by way of a PS contribution.