Few HCEs, A thousand NHCEs

[Guest LLandau]

I have a design-based problem. A company wants a plan for salaried employees....some of which are HCEs. The total number of salaried employees is approx. 100, 20 of which are HCEs.

The company wants a separate plan for hourlies.......none of which are HCEs, totaling approx. 1000.

The problem is that the company is only interested in making a match on the contributions of the salaried employees. The company will not have it any other way... otherwise the company is considering not having 401(k) plans for anyone as a possible option..... Not pretty.

Is there any way to design a plan for hourlies, without a match, that will pass 410(B)? Any ideas? It would be a shame for hourlies to lose out on a plan.

[Medusa]

No way that I can think of. I think the rules were pretty much written because of the potential for abuse in a situation like this.

[LCARUSI]

Are any of the employees collectively bargained?

[IRC401]

There are ways to deal with the problem if the company is willing to compromise and to pay for good consulting advice (and probably a custom plan document. If the company is not willing to pay for advice or isn't willing to pay attention to the nondiscrimination issues on an ongoing basis, it should forget about a plan for the salaried employees.

I am impressed that they can keep over 1000 employees these days without a 401(k) plan.

[MWeddell]

The ratio percentage for the 401(m) portion of the plan is 8.16%, so even if the average benefit percentage test were to pass, the nondiscriminatory classification test doesn't. Letting everyone make after-tax contributions would solve the 401(m) coverage if the plans were aggregated, but the same arithmetic would create a failed benefit, right, or feature test because each rate of match must be tested.

Consider including all (or at least 13 I suppose) of the 20 HCEs in a nonqualified plan, although that certainly will have some compliance risk of its own because of uncertainty about who can be in a top hat plan. LCarusi's question is a good one too.

[Guest LLandau]

Everyone: Your advice is greatly appreciated. Thank you for helping me think this through.

Unfortunately, in this case, there are no collectively bargained employees to reduce the number of eligible employees, and the company does not want a custom plan.

I guess sometimes the answer is "no".