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Guest oneman546

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

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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

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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.

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“… 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).

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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.

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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.

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