3% Non-Elective Contribution

[Guest jkrad]

A plan has salary deferrals and a 3% safe harbor nonelective contribution made to the plan. The safe harbor contribution satisfies the ADP and top heavy minimum. Is it possible for the employer to increase his safe harbor contribution to 4%? Would it still pass the ADP and top heavy minimum?

[Tom Poje]

the SHNEC has to be 'at least' 3%, so one could provide a greater amount in a given year.

however, assuming the notice specified the amount as 3%, I see no way to simply increase the amount to 4% after the fact. you would be in violation of some rule or something.

I have never heard a notice specify that the SHNEC 'will be at least 3%', my gut feeling is the safe harbor should be definitely determinable in order to get the free ride on ADP testing, but I have nothing in which to back up that statement.

[pmacduff]

As I see it your SHNEC will be 3% and then you would, in effect, be making a 1% profit share. This might be a better way to go as you could apply a vesting schedule to the 1% or greater profit share you make. You lose your free ride on top heavy, but it doesn't matter with the SHNEC as that has already satisfied the top heavy 3%. (unless you are working on participation salary/comp, then you might have to give a new participant 3% of annual comp if greater to satisfy top heavy). The safe harbor 3% will still allow you the ADP test free pass. hope this helps.