Safe Harbor Plans

[FJR]

I know this will sound stupid, but how does a Safe Harbor Match allow you to automatically pass the ADP test?

If you have a plan that is designed as a safe harbor with the basic safe harbor match formula and no other contributions going in, then what happens if you get only 2 key employees to contribute and no other NHCE's participate. Is there somewhere in the Regs that allow you to get by without an ADP test?

Thanks.

[WDIK]

A plan offering the safe harbor matching or safe habor profit sharing contribution is deemed to pass by statute. There is no testing involved. The scenario you describe involving no NHCE's that defer is precisely why some companies choose the safe harbor matching option. The HCE's can defer the maximum, receive the match and satisfy the regulations without putting in a penny for the NHCE's.

See Section 401(k)(12) of the Internal Revenue Code.

[FJR]

WDIK, thanks and I was sure of that. As we do more and more of these I just wanted a confirmation. We have that very situation where literally there are no rank and file contributing. What proof do you have to show that they have been properly educated and recieved the SH notifications. To an outsider it could look like the owner isn't educating or informing the EE's.

[Tom Poje]

which is why along with the notice I would have employees in such a case signsomething indicating they realize and understand they would get a nice match if they deferred.