Safe Harbor 401k - Spouse Earning the 402(g) Limit

[Guest Robin S. Vatalaro]

Facts:

Husband (H) is sole owner of his dental practice limited liability company. LLC sponsors a safe harbor 401k plan. Wife (W) is employed by the LLC, as is one NHCE employee (E).

W earns 402(g) limit + enough to handle FICA w/h + enough to leave 415 room for the 3% QNEC; and defers the 402(g) limit annually. Assume W performs valid services (eg no sham employment). E earns $30,000 annually and elects not to defer. H earns approximately $100,000 (earnings from self employment).

Safe harbor contribution is 3% QNEC. H grants profit sharing annually in addition to the QNEC (please ignore possible design flaw issues for purposes of this discussion).

Question:

What I am concerned about is the profit sharing. E gets the profit sharing but W doesn't because she'd go over 415.

This seems okay on its face - but is there any problem with W never getting profit sharing. In other words does 415 override the requirement that the profit sharing percentages be uniform (assume a plain vanilla profit sharing formula)?

Thanks for any help.

[Tom Poje]

1. wife is an hce by attribution, so you would only discriminate against an HCE anyway

2. see 1.410(b)-3(a)(2)© a dc plan can apply the first sentence of (a)(2)(ii)(A) of this section

which says if an en ee is treated as benefiting under a db plan, plan provisions that implement section 415 are disregarded

[R. Butler]

If the document specifies that 415 violations are corrected first by distributing elective deferrals, would they have to allocate a profit sharing and then refund deferrals?

[Tom Poje]

my gut feeling would be yes, since you have to follow the terms of the document.

I have one that says you hold the amounts in suspense and allocate the following year, which could certainly jumble things up.

or if plan allows catch up contributions I think you have issues as well.

(I think its called pension simplification)

[Guest Robin S. Vatalaro]

That's why I love the message boards - something just didn't seem right - thanks for your responses.