Can employer be generous in a safe harbor plan

[Guest lhinson]

Employer sponsors a safe harbor 401(k) plan, and is currently making the 3% SHNEC.

Is there any problem with:

1. Increasing the SHNEC to 10%, or

2. Making an additional 7% NEC?

If he makes the additional 7%, can there be allocation restrictions (1000/last day) on the additional, and would it need to be 100% vested? There is no match in the plan.

Maybe I'm not looking in the right place, but I can't seem to find anything about this. It seems like you only run into problems if you are making a safe harbor match and want to make an additional NEC. In this case, you would no longer be exempt from top heavy I think?

Thanks for the help.

[Tom Poje]

The regulations simply require a SHEC of 'at least' 3%, so it is certainly possible to have a SHNEC greater than 3%. now, is there a document available that does that?

Corbel has one that you enter a fixed % (hopefully user will fill in at least 3%).

the other option would appear to work in conjunction with the 'maybe' notice, where no % is stated until at least 30 days before plan year end.

now, can you have a docment that would be hardcoded something like "A SHNEC of at least 3%..." to me that seems possible, but I have never seen such an animal, nor am I a legal expert, so maybe you can't hardwire the document.

you ceratinly have to follow the terms of whatever document you have so I doubt you can simply increase the SHNEC.

Can you put in additional contributions? of course, if the document allows it. they simply wouldn't be safe harbor. I guess the question would be why you want to do that.

[Guest lhinson]

Ya know, Tom, I long ago stopped asking my clients why they would want to do something. It is sometimes similar to asking my 4 year old.

Our doument has a blank line for the percent, followed by "at least 3%" in parentheses. For this year it does say 3%, but he is looking to next year. He should be able to amend it to 10%.

However, they do permit a discretionary contribution in the document, so wouldn't it make more sense for him to just make an additional discretionary contribution every year? And, would it be OK to put allocation requirements on it (it already has a vesting schedule set up for 6 year graded).

[Archimage]

You can do what you just mentioned. I would recommend to do the additional 7% as your discretionary profit sharing amount.

[Tom Poje]

my question would be can I design a document that actual simply says the SHNEC will be at least 3% and the notice I give says the same thing. and thus, provided I give at least 3% I am ok. or does the document have to be specific as to the exact percentage.

but then I have been seen riding a duck, so maybe my thoughts aren't worth a darn.

[doombuggy]

I used to have a plan that allowed for deferrals, had a match (I forget at what percent), gave profit sharing, and then elected the SH non-elective when that became avaliable. They did the required match contribution and SH each pay period, and then did a discretionary P/S at the end of the year. We used a Corbel doc for that one with no problems - probably b/c the P/S was discretionary. In the end, the company went out of business......

[Guest ElizabethMae]

Hi Tom,

I've come across this in a few PDs, the way it was approached in the PD was by defining/detailing Employer contributions accordingly:

Sample language: " the Employer shall, for each Plan Year, pay to the Plan or its designee an amount for allocation to the Employer Contribution Accounts of Participants who are in the employe of the Employer at the rate speified in the Participation Agreement, which shall be no less that 5%(or whatever minimum at or above 3% that you decree) of the Compensation for each Employee; provided that the Employer shall be required to contribute the same percentage of Compensation for each of its Employees."