Exclude catagories of NHCEs from Safe Harbor

[Earl]

Can you exclude classes of NHCEs from the Safe Harbor contribution. Assuming you pass 410(b) and the plan is not TH they get no ER contrib and it is OK?

Or do you then somehow create two plans (like the early participation rules) 1 SH and 1 Non-SH?

Not 98-52: "a prescribed level of safe harbor matching or nonelective contributions are made on behalf of all eligible nonhighly compensated employees"

[J Simmons]

Assuming you pass 410b, you can exclude a class of employees from a 401k safe harbor plan. Not 98-52, section VII.A.

[Earl]

I am talking about having a class of employees that contains NHCEs that is 1)eligible for the 401k but also 2) ineligible for the SH contribution. I almost see it in the following but not quite. Thank you.

VIII. INTERACTION WITH OTHER RULES AND TESTING METHODS

A. In General

A CODA that is treated as satisfying the ADP test under section 401(k)(3)(A)(ii) and section 1.401(k)-1(b)(2) will not be treated as a qualified CODA unless the arrangement satisfies the other requirements of section 401(k). For example, under section 401(k)(3)(A)(i), the group of eligible employees under the section 401(k) plan must satisfy the requirements of section 410(b), under section 401(k)(4)(A), benefits (other than matching contributions) must not be contingent on an election to defer, and elective contributions must satisfy the allocation and timing rules of section 1.401(k)-1(b)(4). A plan that satisfies the ADP or ACP test safe harbor must satisfy all other qualification requirements of the Code that are applicable to the plan, such as the nondiscriminatory availability of benefits, rights, and features under section 401(a)(4) and the limitations of sections 401(a)(17), 401(a)(30) and 415.

[J Simmons]

As I understand VIII.A. that you quote, a safe harbor 401k must yet meet the 401k requirements other than the ADP test, such as (A) 410b minimum coverage, (B) non-matching benefits cannot be made contingent on an EE making elective deferrals, © the elective deferrals must be from compensation payable and based on work provided during the plan year and be allocated as of a date during the plan year, (D) all BRFs must be nondiscriminatory, (E) only comp up to $230,000 (for plan years beginning with or in 2008) may be taken into account, (F) elective deferrals must be limited to $15,500 for 2008 (or $20,500 if age 50 or older by 12/31/2008), and (G) total benefits accruing to an EE must be the lesser of considered compensation or $46,000 for plan years ending in or with 2008 (or $51,000 if age 50 or older by 12/31/2008 and $20,500 of which was from elective deferrals).

While you can exclude some NHCEs entirely from plan eligibility (provided 410b coverage is nevertheless met) and thereby exclude them from the safe harbor required contribution, I don't see where this lets you exclude just from the safe harbor required contribution NHCEs that are in fact eligible for the 401k.

I assume that the phrase that "the group of eligible employees under the section 401(k) plan must satisfy the requirements of section 410(b)" is perhaps what you're looking at. I don't think that lets you exclude any NHCE that is eligible under the 401k plan from the safe harbor required contribution. I think that if you do so exclude any, the entire 401k would have to be tested and pass ADP.

[Earl]

Thank you. I re-read my original post and find that it was very unclear.

I am taking over a plan that has 1 owner, but has quite a few non-owner professionals that, based upon full year compensation, are all Highly Compensated. But in their 1st plan year of employment (a partial year) they don't make $100,000 so in the second year, their first year of eligibility, they are Non-Highly Compensated even though they are making $150,000 - $200,000 in the second year. And they stay non-owners.

This group (based upon job catagory, not HC status) is excluded from all ER funding but allowed to participate in the 401(k) portion of the plan. I think that they have a problem having excluded the professionals from the SH during their first year of participation (second year of employment). I think the only way to not give them the 3% is to totally exclude them from the plan.

I think your second response is agreeing with this now that (I hope) I have stated the problem more clearly.

Am I correct?

Thank you for reading this.

[J Simmons]

I agree. I think you are correct.