Randy Watson Posted May 16, 2007 Posted May 16, 2007 Is there any way around having to make a top heavy contribution to an HCE that also happens to be a very, very well paid non-key employee? Can they somehow elect out of that contribution?
J Simmons Posted May 17, 2007 Posted May 17, 2007 The owner could give this employee 5% of the ownership to get out of making the 3% top heavy minimum contribution. Seriously, I don't know. I don't think a waiver by the HCE non-key will do the trick of getting out of the employer having to contribute the 3% TH min in for him or her. John Simmons johnsimmonslaw@gmail.com Note to Readers: For you, I'm a stranger posting on a bulletin board. Posts here should not be given the same weight as personalized advice from a professional who knows or can learn all the facts of your situation.
austin3515 Posted May 17, 2007 Posted May 17, 2007 Defintiely have to give him the 3% top heavy. Now, you could arbitrarily and for no good reason reduce his pay in the following year, or simply knock a little bit off that really big bonus so the net cost to owner is zero. The reality is that this happens, particularly with these highly paid executives. I'm curious to know what others think about this. Does anything ERISA preclude a business owner from paying an employee whatever they see fit? Austin Powers, CPA, QPA, ERPA
Randy Watson Posted May 17, 2007 Author Posted May 17, 2007 What really gets me is that this plan is a safe harbor plan that actually makes an additional contribution. So even though this HCE has no right to the safe harbor contribution he has a right to a top heavy contribution. I trying to stop making sense of these rules.
John Feldt ERPA CPC QPA Posted May 17, 2007 Posted May 17, 2007 Ah, that's the real problem, isn't it? You're trying to make sense of these rules! I have found it more worthwhile to just make attempts to understand the rules (if possible), but by no means assume that any "sense" was involved during their creation!
WDIK Posted May 17, 2007 Posted May 17, 2007 Certainly there was sense involved during the creation of regulations such as this. It is just that those individuals involved in the process are of such elite caliber that the sense used is not common. ...but then again, What Do I Know?
Guest Guest99 Posted May 18, 2007 Posted May 18, 2007 What really gets me is that this plan is a safe harbor plan that actually makes an additional contribution. So even though this HCE has no right to the safe harbor contribution he has a right to a top heavy contribution. I trying to stop making sense of these rules. Why doesn't he have the right to the Safe Harbor?
Randy Watson Posted May 18, 2007 Author Posted May 18, 2007 The safe harbor is only required to be given to NHCEs. Actually, we might be able to get around this (prospectively) by creating a second plan for individuals like this. Check out Code Section 416(g)(2)
Guest Boilerburm1 Posted May 18, 2007 Posted May 18, 2007 I would say that austin hit it right on the head - reduce that bonus! Or instead of increasing his pay by 10%, increase it by 7%. The employer has every right to make these adjustments in his own mind. And when he has that meeting to communicate the bonus or pay raise, remind the ee of that additional 3% that went into the plan for him!
Guest fender5150 Posted May 22, 2007 Posted May 22, 2007 The safe harbor is only required to be given to NHCEs. Though the code allows for a company to exclude the 3% match from HCEs, wouldn't they still have to follow the rules they agreed to on the plan document? IE: The company has to follow the rules they agreed to in the approved plan document, right? This is probably a sophomoric question on my part.........
austin3515 Posted May 24, 2007 Posted May 24, 2007 The two separate plans won't work... In order to avoid top-heavy aggregation it is required that you can pass coverage without aggregating (if memory serves, which I'm quite sure it does . A plan covering only HCE's would not be able to meet that criteria. Austin Powers, CPA, QPA, ERPA
austin3515 Posted May 24, 2007 Posted May 24, 2007 Certainly there was sense involved during the creation of regulations such as this. It is just that those individuals involved in the process are of such elite caliber that the sense used is not common. WDIK, this is classic... Austin Powers, CPA, QPA, ERPA
Randy Watson Posted May 24, 2007 Author Posted May 24, 2007 Certainly there was sense involved during the creation of regulations such as this. It is just that those individuals involved in the process are of such elite caliber that the sense used is not common. WDIK, this is classic... I agree, that was very good. Austin, 416(g)(2) defines the aggregation group as each plan that contains a KE and every other plan that enables that first plan with the KE to pass 401(a)(4) and 410. Assume that the second plan does not enable the first plan to pass 401(a)(4) or 410 (since it has HCEs only). It's actually the first plan that would help the second plan pass discrim testing. Is there something out there that I'm missing that would prohibit aggregation for coverage purposes in this case? Thanks.
austin3515 Posted May 24, 2007 Posted May 24, 2007 The NHCE plan enables the HCE plan to pass coverage, therefore, they both must be aggregated. There's just no way a loop hole that large was left open... Austin Powers, CPA, QPA, ERPA
Randy Watson Posted May 24, 2007 Author Posted May 24, 2007 The NHCE plan enables the HCE plan to pass coverage, therefore, they both must be aggregated. There's just no way a loop hole that large was left open... I agree, but that's not what the statute says.
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