401(k) with no NHCE deferring

[Stash026]

I have a 401(k) Plan with both HCEs and NHCEs eligible to defer, but the only ones who elected to contribute were HCEs. Is it possible to say that the Employer would make a Safe Harbor Contribution of 4% up to 100% of deferrals to all NHCEs, and therefore a Safe Harbor of $0 is required to correct for the failed ADP Test?

For some reason, that just seems to easy to me, so I wanted to see if anyone else had handled a situation like this in the past.

[stephen]

As long as the plan was already a safe harbor plan providing for that matching formula and the match is provided as required by the plan document yes it is that simple.

[Tom Poje]

no, you can't just say that a safe harbor contribution will be made.

1. The document must specify the plan is safe harbor and what type of safe harbor will be made. before plan year begin

2. A notice must be provided 30 days before plan year begins.

you can not do things after the fact.

in fact, it all has to be done before the plan year even begins.

nice try.

[Stash026]

The document does provide for a Safe Harbor Contribution and yes, a notice was made before the end of the Plan Year. I didn't think it would be as simple as saying that it was a Safe Harbor of $0, however.

So, assuming that the document does spell out that formula and the notice was issued, it is as simple as saying a $0 Safe Harbor was made to correct for the failed ADP?

[stephen]

Don't "forget" the HCEs "may" have to receive the safe harbor match.

(added "forget" and "may" and changed to statement instead of a question 2/28/06 1:40pm)

[R. Butler]

I'm a little confused. Why are you running an ADP test if its a safe harbor plan?

[R. Butler]

Don't the HCEs have to receive the safe harbor match?

Not necessarily.

[E as in ERISA]

The safe harbor rules just require that the match goes to NHCEs.

[Locust]

That's the deal, but it sounds suspicious that no hnce would defer, but I'm the suspicious sort.

[Bird]

If it's a matching safe harbor, that notice had to be given before the beginning of the plan year.

I'm a little confused. Why are you running an ADP test if its a safe harbor plan?

Good question.

[Guest Pensions in Paradise]

Stash - the situation you've described does raise a lot of flags. You may want to tell your client that they must have the participants sign an acknowledgement sheet certifying that each participant received the safe harbor notice each year. It is unusual for EVERY NHCE to decide they don't want free matching money.

[Stash026]

Yeah, that's a good idea. There was one participant who had participated in prior years, but he actually terminated in 2004, which is why this is the first time we are having this situation for the 2005 Plan Year.

Looks like the HCE's get lucky for the Plan Year, then, and have a Safe Harbor Match of $0, then. Thanks for everyone's help, and I am going to look into having the participants signing off that they don't want to participate, just to cover everyone involved.

Thanks again.

[Stash026]

I have a secondary question now. If the client wishes, can they give a Safe Harbor Match to the HCE's, even though there were no NHCE's who contributed?

Thanks again for everyone's help.

[stephen]

If you are you still talking about a plan year that ended 12/31/2005 and the document said no matching contributions for HCEs and that is what you did you cannot amend it now to provide for contributions for those HCEs for the previous plan year.

If your document says all employees get the safe harbor match they should have already received it per the document.