Plan Design

[Gary]

An employer is to implement a defined benefit and defined contribution plan.

The employer has 10 NHCE and 4 HCE (including owner).

An eligible employee is defined as 21 & 1. And the above 14 employees are all eligible employees.

The employer would like to include himself and 5 NHCEs in the DB plan. This would result in the minimum participation requirement of 40% being met (6/14 = 43%).

The employer would like to include himself and all 10NHCEs in his 401(k) 3% safe harbor plan.

The above plans have no problem passing coverage since only 25% of HCEs participate. And assume for purposes of this illustration that the non discrimination tests are passed as well.

For employees in both plans they will meet TH requiement with 3% DC and 2% DB offset benefit.

For employees in the DC plan only, they will receive DC TH requirement of 3%.

1. My understanding is that ALL ELIGIBLE NHCEs (i.e. all 10) must receive 3% SH contribution from 401(k) plan. That is, none of those employees can be excluded from the DC plan. Is that correct, or can some NHCEs be excluded from DC plan and not receive 3% SH?

2. Otherwise, are there any problems with excluding the HCEs all together? And excluding 4 NHCEs from the DB plan?

Thanks.

[AndyH]

1. No, all eligible NHCEs who are participants must receive the SHNEC.

2. No.

Comment: 401(a)(26) is a bit close IMHO.

[Belgarath]

One other comment which probably doesn't apply, but watch the combined plan deduction limits if DB cost is high enough.

[AndyH]

......and don't round compensation.