Jump to content
austin3515

403(b) for HCEs / 401k for NHCEs

Recommended Posts

Got an interesting question just now.  Can we have a policy that says if you are ever an HCE then you will always be part of the 403b and you will never go back to the 401k.  The purpose would be to avoid people flipping back and forth between the two plans.

I can't think of anything that would prevent it.  I guess the only issue would be coverage.  So if I have NHCE's not covered by the 401k plan, I need to pass a coverage test.  But if we're talking about a larger organization where the NHCEs dramatically outnumber the HCE's (as happens to be the case on the inquiring client) that should be a non-issue.

Share this post


Link to post
Share on other sites

Presumably you would be using the universal availability exclusion for anyone eligible to defer into the 401(k). So, regardless of the 403(b), I think the issue is can you permissibly say that once you have become an HCE at any time you are forever excluded from the 401(k)?

FWIW, I think it's fine. I've done this in a 401(k)/nonqualified plan context where we permanently excluded anyone who ever became an HCE, regardless of later status. (Unrelated, but we were satisfied based on the demographics that the nonqualified plan would keep top-hat status and wanted this rule for administrative ease.) I don't recall extensive research, but we were comfortable with it, assuming, like you do, that if a non-HCE was somehow excluded you would still pass coverage in the 401(k).

The class is easily identifiable and can only move one way once in their career. 

Share this post


Link to post
Share on other sites

I think you misunderstood.  John Doe makes $135,000 in 2019, so he is an HCE for 2020.  In 2020 he makes $110,000 so he is NOT an HCE in 2021.  In order to avoid John Doe flipping back from one plan to another every year, we want him to stay in the 403b plan "permanently" regardless of his HCE/NHCE status.

 

 

Share this post


Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now

×
×
  • Create New...