Why omit HCEs from 3% safe harbor contribution?

[Guest rickw]

We took over a plan that specifically excludes the HCEs from the 3% safe harbor QNEC. What is the advantage to excluding them? (May not be an advantage to *include* them either, but I am just curious. Just seems like one more distinction to keep track of.) Thanks!

[Mike Preston]

It can royally mess up your nondiscrimination testing. Example: presume you have a young, daughter of the owner, age 23, with two years of service. Once that person gets the 3% contribution, a new comparability design may be hopelessly fouled.

[Guest rickw]

It can royally mess up your nondiscrimination testing. Example: presume you have a young, daughter of the owner, age 23, with two years of service. Once that person gets the 3% contribution, a new comparability design may be hopelessly fouled.

Gotcha'. If we were aware of such a problem, I assume we could exclude such a person by some kind of classification definition? (Of course, best to avoid the problem in the first place.)

[Guest Pensions in Paradise]

Another reason we exclude HCE from the safe harbor is to give the owners more flexibility. If they have a bad year it can be difficult to explain to them why they have to make a 3% contribution for themselves.

[Bird]

...and not all HCEs are owners. There might be a highly paid salesperson (any discussion about this is usually accompanied by a rant "...I pay him (her) enough without giving another 3%...").