HCE Rate Groups

[FJR]

Is it possible to design a cross-tested 401(k) safe harbor plan with the following:

Husband and wife

4 eligible NHCE

Offer the 3% non-elective to all participants including the Husband and Wife. Allow the Husband and wife to contribute max. 401(k) contribution (13k) each. Give the NHCE an additional 2% Profit sharing contibution, to satisfy the Gateway min. In order to pass cross-testing, can we eliminate the wife from receiving a Profit Sharing allocation. If so, does the 3% have to be used in the testing or does she not benefit for cross-testing purposes.

Any suggestion other than completely excluding her from the plan?

[Tom Poje]

the wife is an HCE by attribution.

Gateway minimum need only be provided to NHCEs.

Hence, as long as you can pass cross testing, you can give her less. She would have to be in her own class

e.g.

class 1 = owners not by attribution

class 2 = spouses of owners

class 3 = all others

[FJR]

Tom, Can I do the following:

3% Non-elective goes to NHCE's.

Husband and Wife can still defer maximum 401(k) under Safe Harbor rules.

Put Husband in Class 1

Put wife in Class 2

Put all others in Class 3

Allocate Profit Sharing to class 1(husband) at lets say 14%.

Allocate 0% to Class 2 (wife)

Allocate 2% to class 3 for a total of 5%

If I can show that wife does not get a safe harbor or profit sharing contribution, then it passes.

[Earl]

You can do that, however there is probably a separate election in your plan specifying who gets the Safe Harbor (all vs. NHCEs only).

You don't mention the year end so it may be too late to amend that provision if it says Safe Harbor to all.

[Tom Poje]

also you did not mention if Keys were excluded from top-heavy minimums.