HCE vs. NHCE

[Guest koolkid]

Can a 401(k) plan match NHCE deferrals at a higher rate than HCE deferrals? Do HCE deferrals need to be matched at all? Are there any negatives of doing this from a compliance testing perspective?

[mbozek]

There is no prohibition against discriminating against HCE and 5% owners under the nondiscrimination provisions of the code- Plans can discriminate in favor of non HCE and frequently do increase the contribution to the 401(k) plan to increase the ADP %. there is no requirement to match the contributions on an HCE under a 401(k) plan.

[pjkoehler]

If a company match for the HCEs is making the ACP test difficult to pass, and the company is not inclined to consider one of the "safe harbor" plan designs, you might consider amending the plan to exclude the HCEs from the match and restore it to a "select group of management and highly compensated employes," as well as permit additional deferrals for this group, by establishing a nonqualified 401(k) wraparound or mirror plan (also known as an ERISA "top hat" plan) and a rabbi trust that operates to track earnings based on the participant's investment direction among the same investment options available under the qualified 401(k) plan.

Please Note: the "top hat" group is not necessarily co-extensive with the HCE group. So there may be some HCEs that should not be permitted to participate in the nonqualified plan.