Safe Habor Match Participation

[Guest PAINPA]

I have a small client, 2 owners and 2 employee's of which they maximize their contributions to $41k?

They are currently under a P/S only plan with their current TPA. The owners think that the 2 employee's do not appreciate the 17% contribution they receive a P/S.

Could a Safe Harbor Enhanced plan ($1:$1 up to 6%) be implemented so that the owners can take $25.3k ($13k Deferral $12.3k S/H Match on $205k comp) from the 401k side before the other $15.7k is obtained from the P/S side. The catch is that they think the employee's will not defer so the employer match contribution would be 0%. The owners percentage on the P/S side would be 7.8% and the 2 employees under an integrated formula would be slightly less than 7.8%. Thus the comparison would be the 17% they currently receive vs. <7.8% on this design for 2004.

The ages of the group do not favor a New Comp design.

My question is what if the 2 NHCE's do not participate at all? I would have the plan sponsor obtain a signature from each of them, during the S/H election period so it clearly identifies the match they are giving up. Is there any else I should do or is this scenario and BAD setup?

Thanks....

[Archimage]

I would have the employees sign a sheet of paper stating they received the safe harbor notice and sign a deferral election form stating they do not wish to defer at this time.

If the owners feel certain they won't defer, I would take the design a step further. I would make the match formula 250% of the first 6% (or whatever the formula would be to get the HCEs to 41,000). Since this is all safe harbor contributions, the NHCEs would not even have to get the top heavy. You could adjust this based on what the owners want to do but it should give you some ideas.