401(k) Safe Harbor with Profit Sharing

[MBCarey]

I am trying to run a couple of scenarios on a plan that has 3 HC's (two owners and the son of one of the owners) and 6 NHCE's. The two owners want to defer the max and then receive enough in the PS piece to get them to $40,000. Prior to this the plan was run as a standard 401(k) plan with a integrated profits sharing contribution amount that maxed the HC's (usually was over 17%)

They want to see two scenarios"

1. 401(k) safe Harbor plan with a 3% non-elective contribution allowing all three to get to 12,000 and then making a profit sharing contribution to get them to the max. When I try to do this and include the son for a share of the profit sharing, I start failing 410b and the Average Benefits Tests. Am I still subject to these tests?

Do I have to include the son in on the ps piece or can I just leave him with the deferral amount. (he is only 26 and makes less than $50,000)

2. The other scenario they want to see is what will happen in a cross tested plan. Can they still defer and be subject to the ADP test and then spread the profit sharig on a cross tested basis? Am I still subject to Average Benefits test and 410b?

Sorry if I am confusing everyone.

[Tom Poje]

terminology:

410(b) is simply how many NHCE bodies covered compared to HCE bodies covered.

Assuming 410k safe harbor with 3% nonelective - no match then you have 2 410b tests

401(k) - I would assume automatic pass since all can defer

nonelective - since all receive safe harbor this also passes

Amounts testings:

deferrals (ADP) - don't need to do since plan is safe harbor

nonelective portion - pass/fail will depend on what additional contribution is made.

if the intent is to give the owners more, then you would have to cross test. because of son's age you would want him in a group by himself. there is almost no way you can max him out without giving away booka-booka bucks to the NHCE

[MBCarey]

Tom, thanks for replying.

Seems like no matter what amount I give to the son, the tests still fail. Can I give him zero and only let him make the deferral. Is this allowed? Can I do a safe harbor Qnec and still cross test the profit sharing piece.

I am real confused. It seems like the only way to get the plan to pass is to leave him out of the profit sharing contribution altogether.

[Tom Poje]

safe harbor is not a QNEC, to avoid confusion I call them SHNECs.

HCEs can be excluded from the SHNEC but it is all or nothing as far as I know you can't give to some and not others.

SHNECs are included in the cross testing, rate group testing, etc.

Possibly set up as follows

SHNEC to NHCEs

owners not be attribution x% profit sharing

owners by attribution (the son) y%

all others z%

if son is youngets ee he could never get more than the NHCEs

possibly could do component testing, with son and some NHCEs and test using allocation method, but thats a bit more than what I would discuss here.

[Brian Gallagher]

the 3% SH non-elective would be capped at $6000.00, n'est-ce pas? $200,000 X .03.

[MBCarey]

By giving the 3% SHNEC to the NHCE's only, can all three HC's defer the max of 12,000.

The can I post $28,000 each the two owners (21%) nothing to the son as a PS contribution and 7% to the NHCE's. This seems to pass all the tests, but if I try to give a contribution to the son, then the plan fails.

What am I missing here? A brain maybe? Don't answer that

[MBCarey]

Sorry 21% was wrong, I think the percentage is 16.47%.

[Blinky the 3-eyed Fish]

You can test using component plans to help get the son some dollars. Of course this adds some complexity.

I see now that Tom already mentioned that.