Safe Harbor Match only to NHCEs?

[CAR]

A Clinic 401k plan uses the Safe Harbor Basic Match. However, pursuant to severe cash flow problems wishes to only provide the safe harbor match to NHCEs but still allow HCEs to defer only not receive the SH Match for the next year until their cash flow problems subside. This year HCEs had to stop deferring because employer could not afford their match payment and still provide the match to the staff (3 Doctors with 11 staff - all deferring). Doctors still want to defer but are willing to forgo the SH match for next plan year. My understanding is that the Safe Harbor Basic Match (and/or the SH Non-Elective) cannot be restricted to just NHCEs. Is there a way around this so that they can keep the plan a safe harbor? Also, this would be a top heavy plan without the SH Match so they would be required to provide the minimum 3% to NHCEs if the plan were not a Safe Harbor, but Drs still couldn't defer as much as they could under a Safe Harbor. Any suggestions?

[Jim Chad]

This may be hard to explain to them, but I think the plan allows the flexibiltiy to do what they want. For example if the doctors each want to defer taxes on $15,000, there will be some smaller deferral combined with the match which will equal $15,000. Maybe it will be $7,500 deferral and $7,500 match.

This would require no change to the document and would save some payroll taxes, too.

[Guest Tbrown]

I think Jim has the best idea since lower the deferral and giving them a match (so that the total would be the same if they just deferred the max) would be better for them from a tax standpoint. But to your question directly, I don't see why the document can't read that only the NHCE's get the safe harbor match. It shouldn't be any different that the 3% non-elective SH.

Tim

[Guest Pensions in Paradise]

Tim is correct. HCE's can be excluded from safe harbor contributions (whether nonelective or match). The regulations only require that the safe harbor contribution be made on behalf of NHCEs.

[austin3515]

I'm curious about the top-heavy question. Do the non-key HCE's need to get the top-heavy minimum? In other words, how does excluding HCE's impact the exemption from top-heavy requirements?

NEver come across that before...

[Bob R]

I don't think you lose the TH exemption. The exemption applies if the plan consists solely of deferrals and safe harbor contributions. Under the law, the SH contributions only need to go to NHCEs.

Which raises an issue that I hadn't really thought about - it's the reverse of your question. Does providing the SH to the HCEs blow the exemption? Rev. Rul. 2004-13 doesn't address the 3% SH but does address the rate of match for HCEs vs. NHCEs. Thus, I think you are still exempt regardless of whether you give the SH to all employees or to just the NHCEs.

But, the prior posts are what you should follow, because if the plan provides the SH to all employees, you may find that your ability to amend the plan during the year to exclude the HCEs is limited.

[K-t-F]

Is the ability to only make SH contributions to the NHCEs something that must be stated in the doc.... or is it simply a rule that exists?

[John Feldt ERPA CPC QPA]

Put it in the document. Make sure your safe harbor notice is clear in this regard too.

[CAR]

Thank you all very much for your responses! I appreciated your comments and the idea on an equal deferral and match. They have all been very helpful. I have asked the empoyer if they wish to amend the plan and the recently issued Safe Harbor Notice to discontinue the next year's safe harbor contribution to the HCEs. If so, all will be done before the beginning of their next plan year.