Is this a safe-harbor match plan?

[SoCalActuary]

For 2006, a plan wishes to use the safe-harbor match formula, but with two exceptions:

1. 3 Key employees (all HCE's) get no match

2. All other HCE's get the safe-harbor match formula, but subject to vesting.

The plan is not top-heavy.

Does this exempt the plan from 401k/m testing?

[rcline46]

No.

[Leopurrd]

SoCal,

There are specific restrictions on the Safe Harbor contributions; namely:

-it must be specified in the document (unless you're using the flexible 3% shnec, I think, but that's another story that I cannot elaborate on)

-there cannot be any restrictions on receiving the match (so as soon as you enter, if you defer, you get a match, regardless of hours worked/last day rule)

-it must always be 100% vested

-it cannot be distributed on account of hardship, etc (mainly your QNEC/deferral restrictions)

-You must give a notice on an annual basis at least 30 days prior to the first payroll of the plan year for which you are relying on the sh contribution.

You can exclude HCE's from receiving the SH contrib if your plan doc allows.

Of course, these arent ALL of the restrictions, but I think the most prominent ones. If they want to switch to a SH match, they'll need to adhere to the rules above, amend their plan, and give notice to the employees by Nov 30, 2005.

If they want to pass ADP/ACP without safe harbor there are add'l options, but they will still be restricted compared to the safe harbor route.

[SoCalActuary]

Thanks for the summary.

The questions that arose are:

1. can we exclude only some of the HCE's as a document provision?

2. do the HCE's that are included have to get 100% vesting?

I feel comfortable with #1, but not #2.

[Leopurrd]

SoCal,

Not sure about Question #1 - I know that on our Corbel prototype, it allows only for you to exclude ALL HCE's. I'm not sure about excluding only SOME. However, with it being HCE's it may not be frowned upon. Then again, I'm not an expert on plan document drafting. (Although; if they did not want to defer, they could elect out on a nonstandard document?)

In regards to #2, all SH contributions MUST be 100% vested. Unfortunately you can't get around that, even with HCE's.

[Tom Poje]

I suspect it is possible, but probably only throuh individually designed plan.

the regs (1.401(k)-3©(1) simply says safe harbor is satisfied if a QMAC is made for all nhces that satisfies either the basic match or the enhanced match.

(2) is the basic match

(3) is the enhanced match

(4) says hces cant get a higher ratio of matching contributions (note the way I read it doesnt matter if those matching contributions are safe harbor or not.

(5) gets into the issue of matching after tax contributions, doing things on payroll basis

6) discusses what limitations can be placed on deferrals e.g. caps, limits on comp, etc.