Leaderboard

I looked into this a couple weeks ago thoroughly and came to Luke's conclusion. If one tracks the cross-references from Notice 2016-16 to the 401(k) regulations, I found that "safe harbor contributions" are the contributions required for the NHCEs and that contributions made to the HCEs (even though the plan document and the SPD might call them safe harbor contributions) are not safe harbor contributions. Therefore, the barrier against a mid-year reduction or suspension in contributions doesn't apply to the HCEs. One still has to provide a supplemental participant safe harbor notice 30 days or more before the effective date that the contributions to HCEs are reduced.

"I suggest the employer help set up payroll deduction IRAs with their own bank for any new employee who wants to defer before the one year eligibility is met. There is a rule that if an employer has reason to believe that the IRA contribution will be deductible for the employee, he doesn't have to subject that amount to withholding so it operates much like 401(k) deferrals. Most new employees won't go over the IRA cap anyway." Larry, that's very interesting indeed. Do you know, offhand, a citation for that? Please don't take any time, I can dig around when I have a chance.

I agree that you have to follow your plan document, but what principle of law says that you cannot use funds forfeited in 2020 to fund whatever employer wants/needs to contribute (other than elective deferrals) for 2019? I'm unaware of it. The plans I have drafted say that the forfeiture occurs as soon as the employee takes a lump sum of the vested portion of his/her balance (i.e., the forfeiture occurs immediately, not as of end of plan year or any later date), and funds can be used to pay plan expenses or offset employer contributions, without any more specificity than that.