HCE limited in deferrals, looking for alternatives

[Lori H]

an hce, is the sole hce participating in a deferral only 401(K). of the 1200 eligible nhces only 98 are participating for a whopping 8% participation rate. overall nhce adp is a miserable 0.38%. which is par for the course for this plan. aforementioned hce is age 64 and does the catch up but obviously not much more than that. outside a roth, any suggestions on what he could do? i really feel bad for this guy.

[FJR]

Safe Harbor Match

[stephen]

A few ideas:

Is a Safe Harbor 401(k) using the matching provision out of the question? My guess is yes with 98 participants it may not be worth the benefit?

Put in a Non-qualified plan?

If he owns at least 30% of the (c-corp ?) company they could consider setting up an ESOP and he could elect 1042 on his sale to the plan this deferring taxes on the sale of the company and giving him an exit strategy.

[JanetM]

He has only a few options, none of which are free.

Automatic enrollment.

Safe harbor match.

EDUCATION on advantages to participating

[Lori Friedman]

Can an employer do a safe harbor match if it didn't distribute a notice to participants?

[Lori H]

maybe i should add a few additional comments. any sort of match is out of the question. the hce in this case is strictly an employee. education on participating is difficult logistically as the company manages several hotels scattered throughout the country and they are constantly adding/dumping hotels. we ran an analysis increasing the eligibility requirements from 90 days to 120 and a year and it did not provide much relief. there's not much outside the plan he can do i fear? what about an health savings account? thanks for your responses.

[mbozek]

Find a way to make the 1100 non contributing nhces ineligible to participate. 401k plans were never intended to be used in industries with mostly low wage employees who arent paid enough to afford contributions. Why not a serp? Or maybe he could incorporate as a S corp and have the employer pay the S corp for his personal services and the S corp could sponsor its own plan for him. Or he could become an IC and be paid on a 1099 for which he could have his own keogh plan.

[WDIK]

Not being aware of all of the specifics for this individual, such as marital status, anticipated retirement date, and other available retirement benefits, it is difficult to make suggestions that may be applicable. Therefore, the following idea may be way off base, but I'm trying to think outside the box.

If the individual is single and is considering a Roth IRA, his AGI is close to the threshold for the highly compensated designation. Why not suggest he reduce his income below the threshhold? Than he can defer as much as he wants up to the dollar limit.

[mbozek]

WDIK. I thought this question on HCEs in 401k plans was posted last year and a similar solution was proposed.

[WDIK]

Obviously your memory is better than mine. I wasn't trying to get credit for someone else's suggestion.

[Blinky the 3-eyed Fish]

we ran an analysis increasing the eligibility requirements from 90 days to 120 and a year and it did not provide much relief.

This comment makes me believe that otherwise excludable employees are not being separated for ADP testing. Have you tried that for a little help?

[JanetM]

Why not make elegibility one year of service. That should exclude lots if there is high turnover.

[Blinky the 3-eyed Fish]

Janet, that is not necessary when you can simply separate those with less than 1 YOS & 21 from the testing.

[JanetM]

good point. Has been long week.

This HCE doesn't have too many options in qualifed plan.

[mbozek]

WDIK: I didnt intend to accuse you of taking someone else's suggestion- Your response triggered my recollection that someone had asked this Q in a previous post for which an answer was provided.

[Blinky the 3-eyed Fish]

I invented the internet!

I invented sliced bread!

I am the Lord Almighty!!!

Now WDIK, we all know that you have taken credit before.

[WDIK]

Blinky,

I'm afraid you are confusing me with my evil twin WDYK.