401(k) with 3% SHNEC and Age Weighted P/S

[TBob]

I have read a few prior posts on this and want to confirm my understanding.

Plan has 2 HCE's. One is very old (owner) and the other is very young (son) and one NHCE in the middle from an age standpoint.

As I understand it, the SHNEC causes two problems with an age weighted plan. First, the EBAR will no longer be the same for all participants so they don't get the automatic pass on cross testing that a normal Age Weighted P/S would get, which forces me to perform the cross testing. Second, the plan will no longer meet the broadly available allocation rates so I will have to make sure they all get the gateway minimum. Is this correct?

With all of that said, I still allocate the P/S contribution based on Comp * Actuarial Factor (disregarding the 3% SHNEC). Correct?

Is this why they say that two safe harbors don't make a safe harbor?

[Tom Poje]

how is an age weighted plan 'safe-harbor'?

A safe harbor plan is one that does not have to perform a(4) testing.

Either an even % is allocated to all participants (including possible permitted disparity) or the same $ amount allocated to each paricipant.

There is also a non designed based safe haror - a points plan - but even that one requires some tesing.

Age weighted requires testing, generally the E-Bars are the same, and perhaps this gives it the appearence of being safe harbor.

[TBob]

You are correct that it is not a "safe harbor". I used that term too loosely! I does somewhat have the appearance of a SH since going into the allocation the EBAR's should all be the same but that does not mean that I don't have to test the plan under a(4).

I guess that answers my question too. The SHNEC is going to cause the EBAR's to be different and in my case the plan will fail. The plan was designed as age weighted because of the young HCE. Then the SH 3% was added as well and his EBAR will now be significantly higher than the only NHCE.

If they switch to the SH match, that would fix the problem going forward correct?

[Tom Poje]

the match is a good thought. that would fix the problem going forward