Adoption of safe Harbor 401(k)

[Guest BHS]

Client is adopting a safe harbor 401(k) plan with a short first Plan Year: October 1, 2001 - December 31, 2001. Plan allows for employee deferrals up to the lesser of 100% of Compensation for the Plan Year or the §415 maximum for the calendar year. Assuming that only the highly-compensated employees take advantage of the ability to contribute a maximum $10,500 within the three (3) month Plan Year (and the non-highly do not), do we have a problem?

Thanks.

[rcline46]

Definition of comp important. Say doc says max def is 15% of pay, and pay is while participant. 10,500 divided by .15 gives final 3 month comp of 70000. But if short year (NOT A GOOD IDEA) then comp must be 170000/4 or 42500 so hces could not contribute max. Line up you ducks properly and it will be ok. Mess it up and you have a non-qualified plan.